He said: “The group expects strong production from upstream projects to be supportive of organic free cash flow growth. Indeed, the company’s Chief Executive Bob Dudley highlighted that BP is well prepared for any volatility in oil prices ahead, as a result of a number of portfolio additions and a substantial amount of the financial liabilities from the Deepwater Horizon now behind it.
“After selling off a number of assets the company had planned on reinvesting in higher growth opportunities, but BP, like most other companies, is now looking to scale back on capital expenditure in the lower oil price environment. Cost controls will continue to be a theme, and in the meantime production and reserves replacement remain strong.”
Spooner recommends the stock as a ‘Buy’ for contrarian investors willing to assume an intermediate level of risk but noted uncertainty around oil prices would remain a challenge.
Khalaf added there was cause for concern over the potentially “limited scope for dividend growth in the immediate future,” particularly if commodity markets tank.
“One worrying aspect of the dividend is the colossal amount being paid out in shares rather than cash, which increases the number of mouths to feed next time a payment is made. BP issued $2.9 billion of shares in lieu of dividends in 2016; shares which if listed separately would form a company at the top end of the FTSE 250.”
