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BP Plc's (BP) 5-Year Cash Flow Projection Looks Impressive

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British energy giant BP plc (BP - Free Report) recently came in the spotlight owing to its impressive cash flow projection for the next five years from its major operating units. The company also expects to maintain the present capital framework over the period.

Considerable Upstream Cash Flows

From the upstream segment, the company expects annual pre-tax cash flow between $13 billion and $14 billion through 2021.

Startup of key higher-margin projects will primarily contribute to the improvement in cash flows. Last year, the company started production from six projects. Seven more projects are likely to become operational in 2017. This apart, the integrated energy company is expected to bring online nine developments (that are currently under construction) between 2018 and 2021. It is to be noted that BP’s output is anticipated to grow by an average of 5% between 2016 and 2021.

Promising Downstream Cash Flow

Pre-tax cash flow from the downstream unit will likely be between $9 billion and $10 billion in each of the next five years. Significant growth in the marketing business should support the outperformance.

Notably, the company’s downstream business has played a major role in lowering cash expenses, which were as high as $3 billion since 2014.

Maintained Capital Discipline

Through 2021, BP is expected to maintain its financial framework. Capital spending for organic projects is anticipated in the range of $15–$17 billion every year with gearing of 20–30%. 

Company Details

London-based BP is one of the largest integrated energy firms in the world and its shares have gained 12.3% in the last one year, outperforming the Zacks categorized Oil & Gas International Integrated industry that registered an increase of 9.9%. BP's stock price movement is also better than rival Royal Dutch Shell , which saw its shares appreciate 10.2% over the same time period.

 

However, the oil spill incident of 2010 in the BP-operated Macondo Prospect is still affecting the company. Although BP has cleared the huge litigation expenses related to the spill, it had to divest some of its best operating properties. The asset sales might hinder the company’s future cash generating opportunities. The lost reserves/production from the group's asset sales cannot be ignored either.

Zacks Rank & Stocks to Consider

Currently, the company carries a Zacks Rank #3 (Hold). This implies that the stock will perform in line with the broader U.S. equity market over the next one to three months.

Some better-ranked players in the energy sector include Ultra Petroleum Corp. and Cheniere Energy Inc. (LNG - Free Report) . While Ultra Petroleum sports a Zacks Rank #1 (Strong Buy), Cheniere Energy carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Ultra Petroleum is expected to report revenue growth of almost 56% in 2017.

In 2017, Cheniere Energy is likely to report year-over-year growth of almost 287.5% and 76.9% in revenues and earnings, respectively. 

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