Galapagos Project Will Lead BP Higher In 2013

| About: BP p.l.c. (BP)

BP (NYSE:BP) can't help being aggressive. The company has been making new plays in both oil and gas since the tragic Deepwater Horizon spill, which should be completely paid off this year if all goes well with proposed plea deals.

But the company has not let legal troubles and settlements curb its appetite for exploration and production. The company recently helped the federal government raise $1.7 billion in a Gulf of Mexico oil auction. BP was the highest bidder on 43 leases, beating out Exxon Mobil (NYSE:XOM), Chevron (NYSE:CVX), ConocoPhillips (NYSE:COP), Apache (NYSE:APA) and Noble Energy (NYSE:NBL) in the process. The leases were in waters deeper than 1,600 meters, and accounted for more than 53% of all the high bids, or $906 million, and almost 10 times more than tracts in water 400 meters or shallower. This new assertiveness is actually the result of the company's mistakes. BP's problems and mistakes of the past helped the company to come back even stronger. The company is now more safety conscious, with its own safety director reporting directly to CEO Bob Dudle. It has more drive and determination than every before, helping it to capitalize on current plays as well as future finds. With these attributes, I believe this company to be one to own and savor for the long haul.

Fighting through the challenges faced by the company, BP keeps on keeping on, but even with the company's aggressiveness, it still remembers its new philosophy on safety. The Baku-Supsa pipeline was shut down for maintenance, but is now back up and running to full capacity. The pipeline connects BP's Sangachal terminal south of Baku with Georgia's Black Sea port of Supsa.

The company recently announced the startup of its Galapagos development in the deepwater Gulf of Mexico. The company needed this breakthrough, as it marks the first major infrastructure development in the Gulf since the blowout and oil spill of the Macondo well. The Galapagos development actually includes three deepwater fields: the Isabela, Santa Cruz, and Santiago. All three fields are being developed using subsea equipment. Situated 140 miles southeast of New Orleans in 6,500 ft of water is the Na Kika, a BP-operated platform serving as the host facility, with a production capacity of 130,000 boe/d. The platform has been modified to handle output from the three fields. A new production flowline was added to carry the output of the three wells to the Na Kika. Regarding the Galapagos projects, CEO Bob Dudley said, "The start-up of this project in the Gulf of Mexico is one of BP's key operational milestones for 2012, and one of six high-margin projects we expect to come on stream this year. I expect that the operational progress we are now making will deliver increasing financial momentum for BP as we move into 2013 and 2014."

The company is more than willing to end a bad relationship and move on to the next big deal rather than wait it out. The company is in a hurry to make up for lost time as well as money lost. In June, due to a breakdown in relations, BP put its 50% stake in TNK-BP, the Russian joint venture, up for sale. In response, the Russian first deputy prime minister, Igor Shuvalov said, "In the big picture, the only thing I would regret is that BP would leave. Having such an investor on the market is a very valuable thing." BP knows when it is time to cut bait and fish. The company has had its share of bad relations over the Russian deal and feels that it would be better off severing the relationship and going elsewhere in search of oil. One option involved Alfa-Access-Renova (NYSE:AAR), the other co-owner of the Russian oil company, to buy half of BP's stake in TNK-BP, but BP has stated that it did not want to be a minority shareholder in TNK-BP, which provides almost a third of its oil production. In 2003, BP paid $8 billion for its half of TNK-BP, a hugely profitable investment that has yielded $19 billion dividends.

The company is sitting nicely on solid financials for future growth. From 2010 to 2011, BP grew revenues 25.10% from $308.93 billion to $386.46 billion, while net income improved from a loss of $3.72 billion to a gain of $25.70 billion. During the same period, both dividends per share and earnings per share, excluding extraordinary items growth, increased 100% and 778%, respectively. In 2011, cash reserves at BP fell by $4.49 billion, but the company earned $22.15 billion from its operations for a cash flow margin of 5.73%. Additionally, the company generated $482 million in cash from financing while $26.63 billion was spent on investing. The company has a debt to total capital ratio of 28.05%, lower than the previous year's 32.14%. The company had first quarter 2012 revenues of $94.04 billion, 0.64% above the prior year's first quarter results.

There are some risks to investing in BP. First, BP could face further penalties from the Gulf Oil Spill. According to recent reports, BP estimated oil spill figures 20% to 50% below the government's figures. This development could set the company back further, and negatively impact the stock. Second, investors need to closely watch the relationship between BP and Alfa Access Renova. Recently, TNK-BP CEO Mikhail Fridman resigned, another sign of a troubled relationship between the two entities. This announcement is likely to negatively impact BP stock, as this will cast doubts about BP's ability to move forward with its Russian oil venture.

For a company with a lot of baggage, BP is making strides in progress of plays as well as profits. The company's strategy has not seemed to fail it since CEO Dudley took over. With a stellar leadership panel, great financials, and a full-steam-ahead approach to the exploration and production of energy sources, BP is surely one energy company that ownership will prove to be fruitful for many years to come.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.