BP - Analyst Reports

Transcription

25thApril2016
IntegratedOil&Gas
BPP.L.C.(BP)
Deepwater,Divestmentsand
CostDiscipline
BPiscurrentlytradingat$32.00.Usingour
valuationtechniqueswehaveprojectedashare
priceof$33.05usingNetAssetValue,$34.77
usingNAVwithMonteCarloand$32.75usingthe
DiscountedCashFlowmethod.Wethereforedo
notbelievethereisenoughofamarginand
recommendaholdforBP.
Ø PositiveProductiongrowth.Shorttermproductionsee’sBP
reapingnewcapacityfrom17newmajorstartups.Howeverthis
isheavilyskewedtowardsnaturalgas.WeexpectCrudeoil
productiontoremainflat,whilegastoincreaseasmuchas7%
in2017.
Ø Divestmentstrategyafter2010haveprovidedflexibilityfor
DeepwaterHorizonuncertainties.Withcontinueddivestments
planned,weexpectthecompanytonavigatethemselves
adequatelythroughthecurrentperiodofloweroilprices.We
expectdivestmentstoadd$3Bnin2016and$2Bn.
Ø Revenue.AnalysingRevenueacrossthe4streamsofbusiness,
weexpectrevenuetostayrelativelyflatforthenext2years.
Afterwhichweseeaslightdecline.Thisisduetolowerfor
longeroilpricesandnarrowmarginsduetocompetitioninthe
downstreamsegment.
Ø CostDiscipline.WeexpectBP’sCapExtobe$17Bnthroughto
2017.Reducingby7%thereafter.BP’sdownsizingstrategyhas
focussedtheirattentionontheirlargeDeepWaterResource
base.Thisisallowingthecompanytoefficientlycontrol
spending,yetkeepproductionataboveaverageindustrylevels
Recommendation:HOLD
CompanyReport
Industry:IntegratedOil&Gas
SharePricevsS&P500:2011-2016
Legend:BP-------S&P500------
TargetSharePrices
KeyStatistics
SamuelButler
+353833625554
[email protected]
KhushilNathoo
+353834824273
[email protected]
Pleaseseethedisclaimeratthebackofthis
reportforimportantinformation.
IntegratedOilandGas
BPP.L.C
25thApril2016
COMPANYPROFILE
Ø BP p.l.c1. operates as an integrated oil and gas company worldwide, founded in 1889
and is headquartered in London, the United Kingdom. BP currently has 79,200
employeesacross its upstream, and downstream segments of business The company
has a market cap of $98.02 Billion.BP’s2015Lossof$6.482billionistheirlargestlossin
20 years and has plans to cut 7000 jobs by next year. Capital expenditure is expected to
decline to the $17billion-$19billion range in 2016, down from $19.5 billion in 2015 and
$23.8billionin2014.
Ø The Upstream segment engages in the oil and natural gas exploration, field
development, and production. At this stage oil and gas is located, tested, drilled and
extractedfromthereserve.2Incomefromthethissegmentiscloselyinlinewiththepricesof
crudeoilandnaturalgas.Thesecommoditypricesaresubjecttoexternalfactorsoverwhich
thecompanieshavenocontrolover,forexample,productdemand,industryreservelevels,
OPEC’s actions and the occurrence of wars. The upstream segment of a company is also
impactedbythecompany’sabilitytoexplore,acquireandefficientlyproducecrudeoiland
naturalgas.
Ø The Downstream Segment Theseoperationsoccuraftertheproductionstagethroughto
the point of sale. This stage includes the refinement of crude oil and the creation of byproducts such as gasoline, jet fuel, diesel and liquefied natural gas. Earnings for the
downstream segment are tied to margins on refining, manufacturing and marketing of
products that include gasoline, diesel, jet fuel and petrochemicals. Industry margins are
somewhatvolatileandareaffectedbyglobalandregionalsupplyanddemandbalancefor
refinedandpetrochemicals.It offers lubricants, and related products and services under
the Castrol, BP, and Aral brands Ø Rosneft3 isRussia’slargestoilcompanyandtheworld’slargestpubliclytradedoilcompany
intermsofhydrocarbonproduction.BP’s19.75%shareofRosneft’sprovedreserves–onan
SECbasis–is5billionbarrelsofoiland11trillioncubicfeetofgas.Rosneft’sdownstream
operationsincludeinterestsin15refineries. Ø Otherbusinessesandcorporatecomprisesofthebiofuelsandwindbusinesses,thegroup’s
shippingandtreasuryfunctions,andcorporateactivitiesworldwide.
1
YahooFinance
2
http://www.investopedia.com/terms/u/upstream.asp
3
BPAnnualReportandForm20-F2015
©2016,SamuelButler&KhushilNathoo
2
IntegratedOilandGas
25thApril2016
BPP.L.C
RevenueandOperatingIncomebySegment
Exhibit1:Revenuepersegment
RevenueperSegment
400000
350000
300000
250000
other
200000
Upstream
Downstream
150000
100000
50000
0
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Source:2015,20-F
Ø FromExhibit1,weseethatlikeExxonMobilandChevron,themajorityoftheBP’srevenueis
generatedbythedownstreamsegment.Thatistosay,in2015,90%($200Billion)ofthefirm’s
revenuewasfromdownstreamsales.
Ø In 2015, BP’s upstream segment contributed $43.24 Billion or 20% of Total Revenue,
however,50%ofthiswasduetosalestothedownstreamsegment.Asaresult,only10%of
BP’sactualrevenueisattributabletotheupstreamsegment.
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IntegratedOilandGas
25thApril2016
BPP.L.C
Exhibit2:OperatingIncomepersegment
OperatingIncomeperSegment($Millions)
50000
40000
30000
20000
10000
0
-10000
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
-20000
-30000
-40000
-50000
Downstream
Upstream
OtherBusinessesandCorporate
Rosneft
GulfofMexicooilspillresponse
Source:2015,20-F
Ø Whilethemajorityoftherevenuescomefromthedownstreamsegmentofthebusiness,the
upstream segment is the most profitable. The upstream business produces a historical
average figure of 77% of the companies operating income, whereas for the downstream
segmentsthisfigureis18%.Withthedramaticdropinoilpricesoverthepastyear,thefirm’s
upstreamprofitabilityhasdeclinedtremendously.In2015,theupstreamSegmentmadea
lossof$967Million.Whereasthedownstreamsegmentmadeanoperatingprofitof$5.25
Billion.
Ø BP’s19.75%investmentinRosnefthasbeenpayingdividendssince2013.Thiscomesasno
surpriseasRussiacurrentlyproducesmoreoilthananyoneelse.In2015,BPreceived$1.3
BillionfromtheirholdingsinRosneft.
Ø BP’sOtherBusinessandCorporateshasbeenmakingalossforanumberofyears.Thisis
largelyduetothehighreplacementcostsassociatedwithrenewableenergy.Thisbusiness
segmentmadealossof$1.77Billionin2015.
Ø Lastly BP’s Gulf of Mexico oil spill response reduced operating income by a further $11.7
Billion.Thisisabigincreasefrom2014’sfigureof$800million.Thereasonforthisisthatthe
UnitedStatesGovernmentorderedBPto“fullyandfinallyresolveanyandallnaturalwater
damages”4.
4
BP.PLCGroupResults,FourthQuarterandfullyear2015(Forimmediaterelease),2February
2016
4
IntegratedOilandGas
25thApril2016
BPP.L.C
IndustryOPERATINGMetrics
Forthisindustry,thekeyoperatingmetricsareProvedReserves,Production,ProvedReserves
ReplacementratioandtheReserveLiferatio.
Reserves
Ø BP has the second highest total proved reserves (after ExxonMobil) in the industry with
17,180millionbarrelsofoilequivalent(MMBOE).Moreover,fromExhibit3weseethatthe
companyhasboththethesecondhighestprovedreservesofnaturalgasat7,513MMBOE
andthesecondhighestprovedreservesofCrudeoilat9559millionbarrels.
Ø Provedreserves,isanimportantdriverfortheintegratedoilandgasindustry.ByBPholding
significantly more reserves in these finite commodities than their competitors (bar
ExxonMobil),thisgivesthemavaluationadvantage.
Exhibit3:OilandGasReserves
NaturalGasProvedReserves
(MMBOE)
CrudeoilProvedReserves(MMLS)
TOTALSA
TOTALSA
SuncorEnergyInc
SuncorEnergyInc
RoyalDutchShellPLC
RoyalDutchShellPLC
HuskyEnergyInc
HuskyEnergyInc
ExxonMobilCorp
ExxonMobilCorp
EniSpA
EniSpA
ChevronCorp
ChevronCorp
BPPLC
BPPLC
0
5000
10000
15000
Source:CurrentBloombergData
0
5000 10000 15000 20000
Ø Proved reserves replacement ratio is the extent to which the year’s production is being
replaced by proved reserves added to the companies reserve base. In 2015, companies
reserveratiowas61%,thisissimilartotheir2014figureof61%,howeveritismuchlower
thantheirlongertermaverageof103%.
5
IntegratedOilandGas
25thApril2016
BPP.L.C
Production
Ø Productionisthecausalresultofreservesandisanimportantmeasureofperformancesince
it determines gross revenue, and when combined with costs, the companies cash flow.
Companies control production and generally produce at rates to maximize return on
investment,butdifferencesariseinhowoilandgasisproduceddependingonlocation,level
of production and market conditions. Companies may shut-in or curtail gas production to
protectwellborestabilityorbecauseoflowprices,whileoilwellsarealmostalwaysoperated
atfullcapacity.5
Ø We see BP produces 3,136 thousands of barrels of oil equivalent per day, 22% less than
ExxonMobil,themarketleader,butlargerthananyothersupermajor.
Ø Furthermore,BPproducesnaturalgasatarateof1,191thousandbarrelsofoilequivalents
perday,33%morethantheindustryaverageof890MMBOE.
Ø BPalsoproducescrudeoil1,945thousandbarrelsofoilperday,52%morethantheindustry
averageof1,280MBbls.
Exhibit4:DailyProductionLevels
NaturalGasDailyProduction
(MBPD)
CrudeOilDailyProduction(MBPD)
TOTALSA
TOTALSA
SuncorEnergyInc
SuncorEnergyInc
RoyalDutchShellPLC
RoyalDutchShellPLC
HuskyEnergyInc
HuskyEnergyInc
ExxonMobilCorp
ExxonMobilCorp
EniSpA
EniSpA
ChevronCorp
ChevronCorp
BPPLC
BPPLC
0
500
1000 1500 2000
0
500 1000 1500 2000 2500
5
MarkJ.Kaiser,YunkeYu,2012,OilandGasFinancialJournal.
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IntegratedOilandGas
25thApril2016
BPP.L.C
R/PRatio
Ø TheR/PRatioortheReserveliferatioisanindustryspecificoperatingmetricindicatingthe
numberofyearsinwhichthetotalprovedreserves(withoutaddingfurtherreserves)would
be depleted, given our daily production rates. The bigger the R/P ratio, the more value
investorsseeinacompanyandassuchwillpayapremiumforthislongterminvestment.BP
currentlyhasaReservelifeof15years,thisthesecondlargestofthe“Supermajors”behind
ExxonMobil.
Exhibit5:ReserveLifeRatio
ReserveLifeRatio
TOTALSA
14.1
SuncorEnergyInc
22.0
RoyalDutchShellPLC
11.0
HuskyEnergyInc
10.5
17.7
ExxonMobilCorp
EniSpA
11.2
ChevronCorp
11.7
15.0
BPPLC
0.0
5.0
10.0
15.0
20.0
25.0
7
IntegratedOilandGas
BPP.L.C
25thApril2016
FORECASTS
Production
Ø BP’s principal areas of oil and natural gas production are in Angola, Argentina, Australia,
Azerbaijan,Egypt,Iraq,Trinidad,UAE,theUKandtheUS
Ø BPsuccessfullycompleted3majorupstreamprojectsin2015andplanstostartproduction
from17start-upsby2020.11oftheseprojectswillbefocusedonnaturalgas.Seeexhibit
6aand6b.
Exhibit6a:Globalupstreamprojects
Source:Current2015AnnualReport
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IntegratedOilandGas
25thApril2016
BPP.L.C
Exhibit6b:BPUpstreamProjectPipeline
BPUpstreamProjectPipeline
Oil
%ownership MBOED Production
Gas
%ownership MBOED Production
2016
ThunderHorseWaterInjection
Quad204
75%
36%
23
122
ClairRidge
ThunderHorseSouthExpansion
29%
75%
99
42
17.25 InAmenas
43.92 PointThomson
61.17
46%
32%
107
8
49.22
2.56
51.78
WestNileDelta
70%
60%
17%
60%
94
200
50
237
65.8
120
8.5
142.2
336.5
Culzean
ShahDeniz
WesternFlank
16%
29%
17%
99
370
77
15.84
107.3
13.09
136.23
2017
28.71 Juniper
31.5 OmanKhazzanGas
Persephone
60.21
2018-2020
Source:BPwebsite
Ø Analyzingthecompany’sprojectsthatareintheconstructionphase,weforecastthe
followingoilandgasproductiongrowthrates:
Ø BPexpectsfull-year2016underlyingproductiontobe“broadlyflat”6,with2015.After
lookingintoBP’sownershipoftheprojectsgoingonlineweseea1%growthratefor
bothoilandgasasconservativeestimatefor2016.
Ø Theupstreamprojectsthatareexpectedtogoonlinein2017areheavilyskewed
towardsnaturalgasproduction.Asaresult,weforecastnaturalgasproductionto
increaseby7%inthatyear.Incontrast,wefindthattheprojectsproducingoilin2017
areverysimilartothatoftheonesgoingonlinein2016,wethereforemaintainoil
growthat1%.
Ø Subsequently,from2018to2020,BPhas3largenaturalgasprojectsthatwillincrease
2017productionby10%.Theexacttimingoftheseprojectswithinthisperiodisstill
largelyuncertain.Asaresult,weconservativelyspreadthisgrowthacrosstheperiod,
increasingproductionby3.3%yearonyear.
Ø In terms of growth in oil production beyond 2017, the company has not provided
guidance.ThehighcostsassociatedwiththelargeDeepwateroilfieldprojects(Thunder
Horse)thatareexpectedtocomeonlinein2016-2017indicatethatoilproductionwill
stayflatat2017levelsasthecompanyconsolidatesitsportfolioofprojectsuntil2020.As
oilpricesbegintoincrease(beyond2020)andasthecompanyproportionatelyincreases
its capital spending we expect production to increase to levels higher than we have
forecastedin2020.
6
BP.PLCGroupResults,FourthQuarterandfullyear2015(Forimmediaterelease),2February
2016
9
IntegratedOilandGas
25thApril2016
BPP.L.C
Exhibit7:DailyProductionForecast(appendix4)
DailyProduction
CrudeOil(MBbls)
NaturalGas(MCf)
2016
2017
1244.32
6010.51
2018
1256.76
6431.25
2019
1256.76
6643.48
2020
1256.76
6862.71
1256.76
7089.18
Prices
Ø To price both oil and natural gas we used a random walk, more specifically a Geometric
BrownianMotionSimulation.
Ø Ingeneral,forecastsmadebytheEIAhavebeenfoundtobeinaccurateinrecentyears.They
seemed to have misunderstood the movements in commodity prices in the past decade.
Fischer, Morgenstern and Hernnstadt (2008) concluded in their discussion paper
“UnderstandingErrorsinEIAProjectionofEnergyDemand”thattheEIAunderestimatedtotal
energydemandbyanaverageof2%peryear.Moreover,theresidualprojectionerrorsrange
upto7%.
Ø With the difficulty in forecasting oil prices being a serious concern, the federal reserve
engagedinaseriesofdiscussionpapersinordertofindthemostaccuratemethodtodoso.
IntheJuly2011paper,theyconcludedthatbesidesapproachessuchastheAutoRegressive
ConditionalHeteroskedasticitymodelsandtheHamiltonmodel(2003,2010),theoilprice
couldbepredictedbyfillipingacointopredictinwhichdirectionitwouldmove(ie.aRandom
walk).7
Ø In our commodity forecasts we chose to do a Monte Carlo Geometric Brownian Motion
simulation.Weran10,000simulationsforaperiodof5years.
Ø In our simulation we used the current prices of both oil and gas as our initial prices
respectively. Each time step was considered to be a day. For instance, the oil the price
betweenfordaytis:
OilPricet=OilPrice0xexp((𝜇 −
#$
%
)𝑡 + 𝜎𝑊_𝑡
(1)
Therefore,theExpectedoilPriceattimetis:
E[OilPricet]=OilPice0xexp(𝜇𝑡)
(2)
and
𝜇 = 𝜐 + 𝜆 (3)
Where𝜇isthetotaldrift,𝜐isthetruedriftand𝜆isthemarketsriskpremiumforholdingoil.
Ø To calculate the volatility in our model, we looked at the implied volatility on a one-year
VanillacalloptiononBrentCrudeoil,wefound𝜎tobe0.247.
7
http://www.federalreserve.gov/pubs/ifdp/2011/1022/ifdp1022.pdf
10
IntegratedOilandGas
25thApril2016
BPP.L.C
Ø Tocalculatethetotaldriftcomponentforthefirstyears,wefirstfoundthevalueof𝜇that
equatesthecurrentoilpricetothe1-yearfuturesprice.Theoneyearfuturespriceis$46.738
p/b.However,fromourprevioussimulationswefeltthatthisvaluewastoohigh,andassuch
we believe that the market is adding a risk premium for currently holding oil. With the
commoditypricesexperiencingsignificantswingsinthepast6monthswefeelthatthisRisk
premiumiswarranted.
Ø Subsequently,subtracting$1fromourFuturesprice(toaccountfortheriskpremium)we
calculate𝜐(=µ),thetruedriftratetobe0.09369329(9.36%)usingequation2above.This
impliesriskaversionthroughariskpremiumof2.16%(𝜆).
Ø We followed this procedure in order to calculate the 2-year drift rate as well. The 2-year
futurespriceis$48,13,givingatruedriftrateof0.0724222(7.2%)inthesecondyearandan
additionalriskpremiumof1%wascalculated.
Ø Aftertwoyearswebelievethatfuturespricesdonotencompasstechnologicalprogressin
theoilprice.Technologicalinnovationintheoilandgasindustryhastheabilitytoincrease
explorationandproduction,thusimpactingtherecoveryofoilprices.
Ø As a result, in our model we add another term to our drift component 𝜃, the rate of
technologicalprogress,totheyear3andyear4driftrate.Thisratereduces𝜐by2.34%in
year3givinganet,truedriftrateof4.78%.Inyear4werepeatthisprocess,reducingthis
rateby2.34%,givingusatruedriftrateof2.78%.
Ø Therateoftechnologicalprogress,𝜃(2.34%),wastakenfromastudyconductedbytheIMF
andarticulatedintheir2012workingpaperTheFutureofoil:GeologyvsTechnology.
Ø Finally,weremovedthedriftcomponentfromyear5onwards,toillustratetheuncertainty
inoilpricesgoingforward.
Ø Usingourmarketimpliedvaluesof𝜐𝑎𝑛𝑑𝜎wesimulatedourGeometricBrownianmotion
onmatlab(seeAppendixA).
Ø Thereasonforcalculatingourparametersandsubsequentpricesinthisway,insteadoftaking
historicalfigures,isbecausewefeelthatourmodelwouldaccuratelyaccountforthemarkets
expectationofthefuturecommoditypricesinoursimulation.
Exhibit8:ForecastedCommodityPrices
Year
E[OilPrice]
2016
$
45.80
2017
$49.13
2018
$51.35
2019
$52.78
2020
$52.82
FordiscussiononmacroeconomicfactorsseeappendixI.
Year
2016
2017
2018
2019
2020
E[GasPrice]
$2.00
$1.89
$1.57
$2.20
$2.56
8
CMECrudeoilFuturesQuotes(20/04/2016)
11
IntegratedOilandGas
25thApril2016
BPP.L.C
RevenueForecast
Ø To forecast revenue, we split the revenue stream up into the four different business
segments,upstream,downstream,GainsonSaleofAssetsandOtherIncome.
Ø Toforecastupstream,weusedourprojectionfiguresfromourpricesandproduction.We
takerevenuefromthissectionasbeingpricemultipliedbyproduction.
Ø Forourdownstreamsegment,wecalculatedContinuousAnnualGrowthRateasbeing-5%.
Therefore,inprojecting2016-2020downstreamrevenueweusedthisfigure.Thisisinline
with the BP’s guidance, which has stated that they “Anticipate a weaker refining
environment”9,thisispartlyduetonarrowingmarginsduetodemandlaggingbehindsupply,
Inadditiontothis,BPhasbeenunabletomanagethegrowingcompetitionfromnewermore
efficient refineries, especially in Asia. As a result, they have started converting their
uncompetitiverefineriestofuel-importterminals.
Ø To forecast the gains on sale of assets and other income we did the following. Analyzing
Revenuefrompreviousyears’divestments,weseethatthecompanyhasmadeanaverage
gain on asset sales of 23.78%. Using our projected future Disposals (see Divestments) we
multiplythesefiguresby23.7%togetourforecastedgainsonsaleofassets.
Ø Lastly,tocalculateotherincome,whichcomprisesofthebiofuelsandwindbusinesses.We
usedaCAGRof-4%.Whilethecompanyhasnotprovidedanyguidanceforthissegment,we
donotexpectthecurrenttrendtochange.
Exhibit9:RevenueForecast
Revenueforecast
Upstream
Downstream
GainsfromsaleofAssets
OtherIncome
Revenue
2016
25,253.81
189,566.66
713.57
587.30
216,121.34
2017
26,973.44
179,228.63
475.71
564.52
207,242.29
2018
27,362.24
169,454.38
475.71
542.62
197,834.95
2019
29,721.92
160,213.17
475.71
521.57
190,932.37
2020
30,938.18
151,475.93
475.71
501.34
183,391.15 9
BPAnnualReportandForm20-F2015
12
IntegratedOilandGas
25thApril2016
BPP.L.C
ExpensesForecast
Exhibit10:HistoricalTrendforRevenuesandTotalExpense
HistoricalTrend(in $millions)
450000
400000
350000
300000
250000
200000
150000
100000
50000
0
2008
2009
2010
2011
Revenue
2012
2013
2014
2015
Expenses
Ø Exhibit 10 shows that both Revenue and Total expenses follow almost an identical trend.
Additionally, we see that revenue and expenses, which are the main inputs in valuing a
company,arehighlycorrelated,withacorrelationcoefficientof0.98.
Ø Asaresult,wehavefocusedonanalyzingrevenuegrowthofBPandhaveusedthatasaproxy
for the growth in expense (excluding litigation) as we expect that the close relationship
betweenrevenueandexpensetocontinue.Appendix5showsthebreakdown.
EBITDAX(SeeAppendixD)
Ø EBITDAXisameasureusedtoestimateongoingoperatingprofitability.UnlikeEBITDA,itadds
backtheexpensesthefirmwouldincurforcostsofexploration.Therefore,itbecomesvery
important for Oil & Gas companies. Ultimately, it measures the profitability to assist in
financing further exploration efforts. To forecast EBITDAX it is first needed to forecast
Depreciation,DepletionandAmortization(DD&A),interestexpenseandexplorationfigures.
DD&AandexplorationexpensesfollowingRevenuesCAGR(seeExpensesForecastSection).
Inforecastinginterest,wetookanarithmeticaverageofthehistoricalvaluesandkeptthe
interestexpensesfigureconstantgoingforward.WeseeEBITDAXincreasinggoingforward
duetothebetterforecastedoilenvironment.
13
IntegratedOilandGas
BPP.L.C
25thApril2016
CapitalExpenditure(CapEx)
Ø Rightupto2013.Manyofthesupermajorswereincreasingtheircapitalspending.Thiswas
due to a sudden abundance of new opportunities. Resultantly, these companies started
takingonmorelonglifecapital-intensiveprojects,wheretheCapexwasfront-endloaded.
Ø Post2013,BPhasembarkedonlargescaledownsizing(seedivestments)andhavefocused
theirattentionontheirlargeDeepwaterresourcebase.Thisstrategyhasallowedthemtocut
capitalspending,optimizecurrentprojectswiththeresultofkeepingproductionatabove
averageindustrylevels.Thatisexplorationiscurrentlybeingshelved.
Ø BPexpectsorganiccapitalexpenditurewillbeintherangeof$17-19Billionayearthroughto
2017.Thecompanyhas,inpreviousyearsoverestimatedthisfigureandassuch,wetakea
conservativefigureof$17Billionayearthroughto201710.
Ø Whilethecompanyhasnotexplicitlyprovidedguidanceoncapitalexpenditureafter2017,
the lack of optimism in new projects, vague description of expected future start-ups and
commentsmadebyCEORobertDudleythatBP’scurrentbusinessmodelcan“withstanda
longerperiodofloweroilprices”11suggestthatcapitalspendingwillbecutfurtherthrough
2020.Wethereforehavereducedcapitalspendingbythepost2013geometricaverageof
changesincapitalspendingof7%ayearthereafter.Statementsmadebythecompany,and
ouranalysisofthebusinesssuggestthatCapitalExpenditurecutswilldecreaseasoilprices
begintogetbacktoitslong-termequilibriumlevel,wedonotpredictthistohappenbefore
2020.
Exhibit11:CapitalExpenditureForecast
CapitalExpenditure($million)
40000
35000
30000
25000
20000
15000
10000
5000
0
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
10
BPThirdQuarter2015Results
11
BPWebscaston27thOctober2015
14
IntegratedOilandGas
BPP.L.C
25thApril2016
Litigation
Ø BPPlchassettledmostofitspotentialliabilityfromthe2010DeepwaterHorizonoilspill,and
mayhaveclosedthedoorondamagesundertheOilPollutionAct.BP’sguidanceonlitigation
expensesgoingforwardsuggeststhatthecompanyexpectscashoutflowsin2016of$530
BillioninrespectofthecriminalsettlementwiththeUnitedStatesDepartmentofJustice.
Ø Thecompanyhasstatedthatitisnotpossibletoreliablyestimatetheremainingliabilityfor
businesseconomiclossclaimsaswellaslitigationcosts.Weagreewiththisstatementand
havethereforeforecastedthatBPslitigationchargeswillbezerofrom2017onwards.
Divestments
Ø BP has adjusted to the changing environment and met payments related to the 2010
DeepwaterHorizonoilspillbycontinuingtoadaptandrebalancebyfocusingonastronger,
refocused, rebalanced portfolio. It is balanced between different geographies, different
resourcetypes,differentpartsofthevaluechainanddifferentlifecycles.Gettingthisbalance
rightprovidesresilienceandlongevity.
Ø BP’sstrategygoingforwardintermsofdivestmentisvalueovervolume.Therefore,theywill
looktodivestassetsthatnolongerfitwithourstrategyanddeepenourinvolvementinassets
whichaddthemostvalue.Wedon’tseethiscontinueddivestmentasanegative.BPisgetting
ridofprojectsthataren’tofferingapositiveNPVandinturnleaningthecompanyandadding
moreweighttothemoreprofitableprojects.
Ø Theyaretryingtocapturethegreatestvaluethroughthecycleineachbusinesssegment.
Right now in the Upstream this means managing the timing of investments, looking in
particulartoensurewearecapturingthemaximumbenefitsofindustrydeflation,whileat
thesametimepreservingfuturegrowthobjectives.IntheDownstreamsegment,BPnowhas
amorefocusedportfolioofmanufacturingassetswithstrongcompetitiveadvantagesand
marketingbusinessesthataredifferentiatedfromthecompetition.
Ø In2015,BPcompletedthe$10billiondivestmentprogrammeannouncedinOctober2013
with$2.8bnofthiscomingin2015.WeareforecastingthatBPwillincreasetheirdivestment
programmein2016to$3billionbeforereturningtoarateof$2billionperyearthereafter.
This is in line with estimates provided by the company. Divestment proceeds will provide
addedflexibilitytohelpmanagebothcontinuingoilpricevolatilityandBP’scommitmentsin
theUS.ThesedivestmentswillhelpBPkeepdividendsatcurrentlevelsofcloseto$7billion
going forward and stop BP from having to dip into the debt market going forward, as
dividends and capital expenditure will be covered by our forecasted divestments and
operatingcashflows.
15
IntegratedOilandGas
25thApril2016
BPP.L.C
VALUATION
Summary
WevaluedBPusingtwodifferentvaluationtechniques:DiscountedCashFlow(DCF)andMonte
CarloNetAssetValue.
Exhibit12:Valuations
SharePrices
NAVMonteCarlo
NAV
DCF
Current
Base
$34.77
$33.05
$32.75
$32.00
%(over)/undervalued
9%
3%
2%
Our results for these models can be seen in Exhibit 12. BP is currently trading at $32.00.
Therefore,underbothofourvaluationmodelswearerecommendingaHOLDonthisstock.Our
DCFmodelgivesusanupsideof2%.Whereas,ourMonteCarloNetAssetValuationgiveusa
valuewith8%upside.Therefore,werecommendaHOLDaswedon’tbelievethereisanyvalue
ininvestinginthisstockatthesepricelevels.
16
IntegratedOilandGas
25thApril2016
BPP.L.C
WeightedAverageCostofCapital:8.62%(SeeAppendixF)
Firstly,wecalculatedtheWACCtobe8.62%.Weusedthisfigureastheappropriatediscount
rateinsteadofusingtheindustrystandardwhichisassumedtobe10%.Themodelisexplained
below.WACCwasusedinsteadofAPVasweseethattheD/Eratiohasbeenstableinpast
coupleofyearsandwebelievethiswillcontinueintothefuture,seeexhibit13.
Ø Weights:WecalculatedtheweightofBP’sequityanddebt.Weusedthemarketcapto
calculateBP’sweightinequityandweusedthebookvalueofdebttocalculateweightin
debt.Thusweaddedthelatesttwo-yearaverageshorttermandlongtermdebttofind
this.BPscapitalstructureis33:67,Debt:Equity.
Exhibit13:Debt/Equityratio
Debt/Equity
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0
2011
2012
2013
2014
2015
Ø Costofequitycalculation
𝒓𝒂𝒗𝒃 = 𝒓𝒇 + 𝜷(𝒓𝒎 − 𝒓𝒇 )
where𝑟> = 𝑟𝑖𝑠𝑘 − 𝑓𝑟𝑒𝑒𝑟𝑎𝑡𝑒
β=Betaofcompany
(rm-rf)=Impliedriskpremium
Wegetafinalcostofequityfigureof12.3%.
Ø Risk-freeRate:Wedecidedtousethe10-yearTreasuryconstantmaturityrateasthereturn
ontherisklessasset.Thisfigureis1.78%.
Ø BETA:Tocalculateourbeta,weregressedthemonthlyexcessreturnsofthecompanyonthe
excessreturnsofthemarketportfoliousinga60-monthrollingwindow.BP’sadjustedbeta
iscalculatedtobe1.4Thisfigurereflectsthecurrentriskinessofthecompanycomparedto
themarket.YoucanseetheBetatrendinthegraphbelow.
17
IntegratedOilandGas
25thApril2016
BPP.L.C
Exhibit14:Betatrendline
RollingBeta
2.5
2
1.5
1
Beta
0.5
0
Ø EquityRiskPremium:Thiswascalculatedbysimplysubtractingtheriskfreeratefromthe
expectedmarketreturn.Wegotavalueof7.5%
Ø Costofdebt:Weusedlastyears’interestexpenseanddividedthisbythetwo-yearaverage
debt.Thisfigureworkedouttobe1.7%.
Ø TaxRate:Weutilizedthetwo-yearaveragetaxrateforthis.Wehaveataxrateof26.1%.
18
IntegratedOilandGas
25thApril2016
BPP.L.C
DiscountedCashFlow
DCF’sareultimatelythemostcommonlyusedvaluationtechnique.Thereareseveralfactorsthat
arekeytogettingareasonablevalue.Theseinclude,management,growthrateoftheindustry
andthequalityofassetsowned.Ourbasecaseestimationgivesusaprojectedsharepriceof
$32.75 which means the company is undervalued by 2%. Our unlevered free cash flow
projectionscanbeviewedinappendixD.
Exhibit15:DCFValuation
DCF
Base
SharePrice
$32.75
%(over)/undervalued
2%
Assumptions:
Ø Revenue:Aspreviouslymentioned.Thisrevenuefigurechangedforourbull,baseand
bearcases.
Ø TerminalMultiple:WithinourDCFwedecidedagainstusingaterminalgrowthrate.
Alternatively,weusedanEBITDAXmultipletocomputeourterminalvalue.Weuseda
multipleof7.3x.Thisvalueisthemedianforthe8supermajors.SeeappendixDfor
forecastedEBITDAX.
Ø Expenses:GrewatrevenueCAGRduetohighcorrelationwithrevenueasdiscussedin
theabovesection
Ø Capex:Discussedinearliersection.
Ø DiscountRate:UsedtheWACCfigureasourdiscountfactor,8.62%.
Ø Taxrate:Basedonthelast5-yearseffectivetaxrates,28.3%.
OurDCFmodelcalculatesthemodelenterprisevalue.Ourdiscountedcashflowrevolves
aroundtwomajorparts.Firstly,weprojectedthetotalFCFfortheyears2016-2020.Thenwe
proceededbydiscountingourvaluesappropriatelyaccordingtoourWACCfigureof8.63%.
Next,wecalculatedourmodelsterminalvalueusingtheterminalmultiplemethodand
selectinganEV/EBITDAXmultiple.OurdiscountedFCFandTerminalvaluewereaddedtogivea
totalenterprisevalue.Wethenworkedbacktofindourimpliedshareprice.
19
IntegratedOilandGas
25thApril2016
BPP.L.C
NetAssetValue
NAV is the most used valuation technique when it comes to valuing integrated Oil & Gas
companies.ThisisatwistonthetraditionalDCFmodelwitheverythinginthismodelflowing
fromBP’scurrentprovedreserves.Oil&NaturalGasarefiniteresourcesanditisnearimpossible
toknowwhentheseresourceswillrunout.So,astherevenuestreamstartstodeclineovertime
Oil&Gascompanieswillhavedecliningfreecashflows.Oil&Gascompaniescan’tcontinueto
growforeverandproductionwillultimatelyceaseatsometimeinthefuture.Existingreserves
areultimatelyreducedtozeroovertime.12TheNAVmodelgivesusasharepriceof$33.05,which
meansthecompanyisundervaluedby3%.
Exhibit16:NAVValuation
NAV
Base
SharePrice
$33.05
%(over)/undervalued
3%
Ø ASSUMPTIONS:WehavelistedtheassumptionswetookinExhibit17.Wealsoassumethat
BPwillshutdownoncecurrentreservesrunout.Wehavealreadymadeassumptionsabout
thepriceofOil&Gasinaprevioussection.However,productionwillultimatelystoponce
thecurrentreservesrunout.LastlyweassumethatBParenotspendinganymoreonCapEx.
That is to find new reserves, finding new land, acquiring companies. 13To value the other
segment of BP, Downstream, we look at the current EBITDA figures coming from these
segmentsandassignindustrystandardmultiplestothesesegmentsofthecompany.
Exhibit17:NAVAssumptions
NAVAssumptions
NaturalGasReserves(BCF)
OilReserves(Mbbls)
NaturalGasEquivalents(Bcfe)
DiscountRate
33,027
4,689
61,161
8.6%
12
http://www.investopedia.com/ask/answers/021915/how-nav-used-oil-gas-and-energyinvestments.asp
13
https://breakingintowallstreet.com/biws/oil-gas-nav-modeling-revenue-projections/
20
IntegratedOilandGas
25thApril2016
BPP.L.C
Exhibit18:NAVCalculationsforrevenuesandcashflows
Beginning
Reserves
(Bcf)
33,027
30,827
28,480
26,055
23,550
20,955
18,361
15,766
13,171
10,577
7,982
5,388
2,793
198
-
Year
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
NaturalGas
Annual
Production
(Bcf)
2,200
2,347
2,425
2,505
2,595
2,595
2,595
2,595
2,595
2,595
2,595
2,595
2,595
198
-
Median
Price
$/Mcf
$ 2.00
1.89
1.57
2.20
2.56
2.56
2.56
2.56
2.56
2.56
2.56
2.56
2.56
2.56
2.56
2.56
Year
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
Oil
Annual
Production
(MBbls)
455
459
459
459
460
460
460
460
460
460
98
-
Median
Price
$/Bbl
$ 45.80
49.13
51.35
52.78
52.82
52.82
52.82
52.82
52.82
52.82
52.82
52.82
52.82
52.82
52.82
52.82
Revenue($inMillions)
Year
Beginning
Reserves
(MBbls)
4,689
4,234
3,775
3,316
2,857
2,397
1,937
1,477
1,018
558
98
-
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
Natural
Gas
4,396
4,437
3,807
5,511
6,642
6,642
6,642
6,642
6,642
6,642
6,642
6,642
6,642
507
-
Oil
20,858
22,537
23,555
24,211
24,296
24,296
24,296
24,296
24,296
24,296
5,154
-
Total
Revenue
$ 25,253.81
26,973.44
27,362.24
29,721.92
30,938.18
30,938.18
30,938.18
30,938.18
30,938.18
30,938.18
11,795.99
6,642.28
6,642.28
507.46
-
21
IntegratedOilandGas
25thApril2016
BPP.L.C
Ø The reserve changes are just the reserves minus the annual production. After 5 years we
assumetherewon’tbeanylong-termproductiondeclinesofutureproductionwillbeatyear
5’slevel.Alsoitiscommonpracticetoassumethatourfinalyearprojectionforpriceswill
staythesamegoingforward.Revenueisequaltopricemultipliedbyproductioninthiscase.
Tocalculatetherevenueofourupstreamsegmentwetakeourforecastedproductionand
pricesandmultipliedthem.AddingthereservesfromboththeOil&NaturalGasgivesusour
upstreamNAVvalue.
Ø Weimplementedataxrateof38%inthismodel.Thistaxrateistheaverageovertheprevious
fiveyears.Thisgivesusouraftertaxcashflows.UsingtheWACCasourdiscountrateweget
theNetPresentValue(NPV)oftheseaftertaxcashflows.
PresentValueofCashFlowsfromProvedReserves($inMillions)
$114,485.52
Ø Weusedcomparativeanalysistovaluetheothertwosegmentsofthecompany.Wefirstly
calculatedEBITDAoriginatingfromDownstreamin2015andappliedanindustrystandard
multiple of 3x to the Downstream segment. Adding the segments together we get an
enterprisevalueof$128Billion.
Downstream($inMillions)
12/31/2015EBITDA: $ 4,793
EV/EBITDAMultiple:
3.0x
EstimatedEV:
$ 14,379 Exhibit19:NAVValuationShareprice
EnterpriseValue:
BalanceSheetAdjustments:
ImpliedEquityValue:
DilutedSharesOutstanding:
ImpliedSharePrice:
$ 128,865
$ (26,136)
$ 102,729
3108
$ 33.05
Accountingforbalancesheetadjustmentsthisequatestoanimpliedsharepriceof$33.05.
22
IntegratedOilandGas
BPP.L.C
25thApril2016
NetAssetValuewithMonteCarloSimulation
SupplementingtheNetAssetValuemodel,theoilandgasindustryapplyMonteCarlomodelling
toaccountfortheuncertaintyinthepricesofoilandgas.Wefirstobtainedpricedataforoilfrom
1988 to present and natural gas from 1990 to present, respectively. For each of these
commoditieswethencalculatedtheyearonyeargrowthrate,lookedattheirhistogramand
foundthedistributionthatmatchesitbestbasedontheChi-SquaredgoodnessofFit.
Exhibit20a:FittedOilDistribution
Exhibit20b:FittedGasDistribution
Ø FromExhibit20aboveweseethatthebestfitteddistributionfortheoilgrowthratesisthe
NormalDistributionwithmean0.010562andstandarddeviation0.41619.
Ø The best distribution for the natural gas growth rates turns out to be the Extreme Value
Distribution(-0.109545,0.40595)withmean0.1485andstandarddeviationof0.7349(see
Exhibit15).
23
IntegratedOilandGas
BPP.L.C
25thApril2016
Ø Usingtheseasourinputs,wethensetupourNetAssetValueModel,varyingourgrowth
rates and hence the annual oil and gas prices with each iteration. We then ran 10,000
iterationsinoursimulation.Wealsosetamaximumonouroilpriceat$140perbarreland
andnaturalgasat$10MMBtu,inlinewithEIAforecasts.14
Ø OurdiscountratestayedthesameasinourDCFcalculation.
Ø WedecidedtoalterthebasicNAVmodelsproductiontoreacttotheoilprice.Weaddedthe
followingcondition,ifoursimulatedoilpricesweregreaterthanthepreviousyearandalso
thesimulatedoilpricewasgreaterthanourforecastedoilprice,productiongrewby5%more
thanourforecastedproduction.Ifthisconditionwasnotsatisfiedthanproductionstayedat
ourforecastedproductionlevels.WebelieveBPwouldincreaseoilproductionfurtherifthey
seehigheroilprices.
Exhibit21:SimulatedOilPriceGrowth
Exhibit22:SimulatedGasPriceGrowth
Ø InExhibit21&22aboveillustratesourresultantoilpriceandnaturalgaspricegrowthrate
distributionfromoursimulation.
Ø Theresultantsharepriceofthecompany,ouroutputfromthismodel,producedameanvalue
of$34.93.
14
http://www.eia.gov/oiaf/aeo/tablebrowser/
24
IntegratedOilandGas
BPP.L.C
25thApril2016
Exhibit23:ImpliedSharePrice–ResultofNAV
Ø InorderforoursimulationtobeaccuratewefilteredoutvalueswerethePriceoftheshare
wasbelow0,inoursimulationthisonlyhappenedthreetimes.
Ø If we look the Bear and Bull cases of our prices Exhibit 23 (which were the 25th and 75th
percentileofourdistributionrespectively)weseethatourBearpriceis$19.7andourBull
Priceis$44.4.
25
IntegratedOilandGas
BPP.L.C
25thApril2016
APPENDIX
A. Simulated Oil Paths
26
IntegratedOilandGas
25thApril2016
BPP.L.C
B. Production Profile & Forecasting
BP-ProductionProfile
December31,
2011
2012
Historical
2013
2014
2015
2016
2017
Projected
2018
2019
2020
DaysinYear:
365
366
365
365
365
366
365
365
365
366
6,807.00
1,285.00
14,517.00
6,609.00
1,179.00
13,683.00
6,259.00
1,176.00
13,315.00
6,016.00
1,106.00
12,652.00
5,951.00
1,232.00
13,343.00
6,010.5
1,244.3
13,476.43
6,431.2
1,256.8
13,971.82
6,643.5
1,256.8
14,184.06
6,862.7
1,256.8
14,403.29
7,089.2
1,256.8
14,629.76
AverageDailyProduction:
Gas(MCF):
Oil(MBbls):
TotalDailyMMcfe:
TotalAnnualProduction:
NaturalGasLiquids(BCF):
Oil(MMBbls):
TotalBcfe:
2,484.6 2,418.9 2,284.5 2,195.8 2,172.1 2,199.8 2,347.4 2,424.9 2,504.9 2,594.6
469.0 431.5 429.2 403.7 449.7 455.4 458.7 458.7 458.7 460.0
5,298.71 5,007.98 4,859.98 4,617.98 4,870.20 4,932.37 5,099.72 5,177.18 5,257.20 5,354.49
AverageDailyProductionGrowth/(Decline)Rates:
Gas:
Oil:
(2.9%)
(8.2%)
(5.3%)
(0.3%)
(3.9%)
(6.0%)
(1.1%)
11.4%
1.0%
1.0%
7.0%
1.0%
3.3%
0.0%
3.3%
0.0%
3.3%
0.0%
C. Expenses Forecast
BP-ExpenseProjections
($inMillionsorPerMcfeWhereNoted):
December31,
2011
ExpensesPerMMcfeofProduction($inThousands):
Purchases
$ 5.38
Production&manufacturingexpenses $ 0.46
production&similartaxes
$ (0.01)
Depreciationanddepletion
$ 0.21
Impairment&lossesonsales
$ 0.04
Explorationexpenses,includingdryholes$ 0.03
Distribution&adminexpense
$ 0.26
FairValueonembeddedderivatives $ (0.00)
TotalExpensesPerMcfe:
$ 6.37
2012
Historical
2013
2014
2015
2016
2017
Projected
2018
2019
2020
$ 5.85
$ 0.55
$ 0.16
$ 0.25
$ 0.13
$ 0.03
$ 0.27
$ (0.01)
$ 7.23
$ 6.14
$ 0.54
$ 0.15
$ 0.28
$ 0.04
$ 0.07
$ 0.26
$ $ 7.47
$ 6.10
$ 0.56
$ 0.06
$ 0.33
$ 0.19
$ 0.08
$ 0.27
$ $ 7.60
$ 3.38
$ 0.74
$ 0.02
$ 0.31
$ 0.04
$ 0.05
$ 0.24
$ $ 4.78
$ 3.14
$ 0.68
$ 0.02
$ 0.29
$ 0.04
$ 0.04
$ 0.22
$ $ 4.44
$ 2.86
$ 0.62
$ 0.02
$ 0.26
$ 0.03
$ 0.04
$ 0.20
$ $ 4.03
$ 2.64
$ 0.58
$ 0.02
$ 0.24
$ 0.03
$ 0.04
$ 0.19
$ $ 3.73
$ 2.47
$ 0.54
$ 0.02
$ 0.23
$ 0.03
$ 0.04
$ 0.17
$ $ 3.49
$ 2.28
$ 0.50
$ 0.01
$ 0.21
$ 0.03
$ 0.03
$ 0.16
$ $ 3.22
TotalProduction-LinkedExpenses($inMillions):
Purchases
$285,133.00
Production&manufacturingexpenses $ 24,163.00
$ (626.00)
$ 11,357.00
$ 2,058.00
Explorationexpenses,includingdryholes$ 1,520.00
$ 13,958.00
FairValueonembeddedderivatives $ (68.00)
TotalProduction-LinkedExp:
$ 337,495
$292,774.00
$ 27,677.00
$ 8,158.00
$ 12,687.00
$ 6,275.00
$ 1,475.00
$ 13,357.00
$ (347.00)
$ 362,056
$298,351.00
$ 26,127.00
$ 7,047.00
$ 13,510.00
$ 1,961.00
$ 3,441.00
$ 12,611.00
$ $ 363,048
$281,907.00
$ 26,079.00
$ 2,958.00
$ 15,163.00
$ 8,965.00
$ 3,632.00
$ 12,266.00
$ $ 350,970
$164,790.00
$ 35,895.00
$ 1,036.00
$ 15,219.00
$ 1,909.00
$ 2,353.00
$ 11,553.00
$ $ 232,755
$154,902.60
$ 33,741.30
$ 973.84
$ 14,305.86
$ 1,794.46
$ 2,211.82
$ 10,859.82
$ $ 218,790
$145,608.44
$ 31,716.82
$ 915.41
$ 13,447.51
$ 1,686.79
$ 2,079.11
$ 10,208.23
$ $ 205,662
$136,871.94
$ 29,813.81
$ 860.49
$ 12,640.66
$ 1,585.58
$ 1,954.36
$ 9,595.74
$ $ 193,323
$130,028.34
$ 28,323.12
$ 817.46
$ 12,008.63
$ 1,506.31
$ 1,856.65
$ 9,115.95
$ $ 183,656
$122,226.64
$ 26,623.73
$ 768.41
$ 11,288.11
$ 1,415.93
$ 1,745.25
$ 8,568.99
$ $ 172,637
27
IntegratedOilandGas
25thApril2016
BPP.L.C
D. EBITDAX
BP-Non-CashandOne-TimeExpenses,EBITDA,andEBITDAX
($inMillions)
2011
2012
Historical
2013
2014
2015
2016
2017
Projected
2018
2019
2020
25,212
11,357
12,619
49,188
13%
1,024
$ 50,212
13%
$ 11,017
12,687
6,880
$ 30,584
8%
745
$ 31,329
8%
$ 23,451
13,510
6,463
$ 43,424
11%
2,710
$ 46,134
12%
$ 3,780
15,163
947
$ 19,890
6%
3,029
$ 22,919
6%
$ (9,571)
15,219
(3,171)
$ 2,477
1%
1,829
$ 4,306
2%
$ (2,668)
14,306
(756)
$ 10,882
5%
1,867
$ 12,749
6%
$ 1,580
13,448
448
$ 15,475
7%
1,867
$ 17,343
8%
$ 4,512
12,641
1,278
$ 18,431
9%
1,867
$ 20,299
10%
$ 7,276
12,009
2,061
$ 21,346
11%
1,867
$ 23,213
12%
$ 10,754
11,288
3,047
$ 25,089
14%
1,867
$ 26,956
15%
December31,
OperatingIncome:
Plus:DD&A:
Plus:IncometaxExpense
EBITDA:
EBITDAMargin%:
Plus:Exploration:
EBITDAX:
EBITDAXMargin%:
$
$
E. WACC
WACC Calculation
Capital Structure
Debt-to-Total Capitalization
Equity-to-Total Capitalization
33.20%
66.80%
Cost of Debt
Cost of Debt
Tax Rate
After-tax Cost of Debt
1.67%
26.13%
1.23%
Cost of Equity
Risk-free Rate
Market Risk Premium
Levered Beta
Size Premium
Cost of Equity
WACC
1.78%
7.50%
140.10%
0.00%
12.29%
8.62%
28
IntegratedOilandGas
25thApril2016
BPP.L.C
F. Tax Forecasting
BP-TaxRateProjections
December31,
IncomeTax%:
Current:
2011
Historical
2013
2012
31.7%
34.8%
2014
20.3%
2015
14.8%
2016
40.0%
Projected
2018
2017
28.3%
28.3%
28.3%
2019
2020
28.3%
28.3%
G. Income statement
BP-IncomeStatement
($inMillionsExceptPerShareData)
December31,
TotalRevenue:
2011
386,216
2012
388,074
Historical
2013
396,217
2014
358,678
2015
225,982
2016
216,121.34
2017
207,242.29
Projected
2018
197,834.95
2019
190,932.37
2020
183,391.15
Expenses:
Purchases
Production&manufacturingexpenses
Explorationexpenses,includingdryholes
FairValueonembeddedderivatives
Litagation
TotalExpenses:
$ 285,133
24,163
(626)
11,357
2,058
$ 1,520
13,958
(68)
8,906
346,401
$ 292,774
27,677
8,158
12,687
6,275
$ 1,475
13,357
(347)
6,249
368,305
$ 298,351
26,127
7,047
13,510
1,961
$ 3,441
12,611
1,400
364,448
$ 281,907
26,079
2,958
15,163
8,965
$ 3,632
12,266
1,296
352,266
$ 164,790
35,895
1,036
15,219
1,909
$ 2,353
11,553
1,145
233,900
$ 154,903
$ 33,741
$ 974
$ 14,306
$ 1,794
$ 2,212
$ 10,860
$ $ 530
218,790
$ 145,608
$ 31,717
$ 915
$ 13,448
$ 1,687
$ 2,079
$ 10,208
$ $ 205,662
$ 136,872
$ 29,814
$ 860
$ 12,641
$ 1,586
$ 1,954
$ 9,596
$ $ 193,323
$ 130,028
$ 28,323
$ 817
$ 12,009
$ 1,506
$ 1,857
$ 9,116
$ $ 183,656
$ 122,227
$ 26,624
$ 768
$ 11,288
$ 1,416
$ 1,745
$ 8,569
$ $ 172,637
Profitbeforeinterest&tax
$ 39,815
$ 19,769
$ 31,769
$ 6,412
$ (7,918)
$ (2,668)
$ 1,580
$ 4,512
$ 7,276
$ 10,754
FinanceCosts
NetFinanceexpensespensions
OperatingIncome
$ 1,187
400
$ 38,228
$ 1,072
566
$ 18,131
$ 1,068
480
$ 30,221
$ 1,148
314
$ 4,950
$ 1,347
306
$ (9,571)
$ 1,164
$ 1,164
$ 1,164
$ 1,164
$ 1,164
$ (3,833)
$ 416
$ 3,348
$ 6,112
$ 9,590
IncomeTaxExpense:
Current
TotalIncomeTaxExp.:
$ 12,619
12,619
$ 6,880
6,880
$ 6,463
6,463
$ 947
947
$ (3,171)
(3,171)
$ (755.98)
(756)
$ 447.63
448
$ 1,278.42
1,278
$ 2,061.37
2,061
$ 3,046.78
3,047
NetincomeattributabletoBP
Netincomeattributabletononcontrollinginterests
NetIncomeIncludingnoncontrollingInterests:
25,212
$ 397.00
$ 25,609
11,017
$ 234.00
$ 11,251
23,451
$ 307.00
$ 23,758
3,780
$ 223.00
$ 4,003
(6,482)
$ 82.00
$ (6,400)
$ (1,912)
$ 24.50
(1,937)
$ 1,132
$ (14.51)
1,147
$ 3,234
$ (41.44)
3,275
$ 5,215
$ (66.81)
5,281
$ 7,707
$ (98.75)
7,806
29
IntegratedOilandGas
25thApril2016
BPP.L.C
H. DCF Model
AdjustmentstoNI
BP-UnleveredFreeCashFlowProjections
31/12/2016
31/12/2017
31/12/2018
31/12/2019
31/12/2020
DailyProduction(MMcfe):
$ 13,476.43 $ 13,971.82 $ 14,184.06 $ 14,403.29 $14,629.76
4%
2%
2%
2%
Revenue:
$ 216,121.34 $ 207,242.29 $ 197,834.95 $ 190,932.37 $ 183,391.15
-4%
-5%
-3%
-4%
$ 12,748.92 $ 17,342.51 $ 20,298.85 $ 23,213.32 $26,956.38
36%
17%
14%
16%
$ (2,668.36) $1,579.98 $4,512.37 $7,275.92 $10,754.09
-159%
186%
61%
48%
EBITDAX:
OperatingIncome(EBIT):
Less:Taxes
$755.98 $(447.63) $ (1,278.42) $ (2,061.37) $(3,046.78)
-159%
186%
61%
48%
Plus:DD&A
$ 13,877.55 $ 13,076.92 $ 12,153.22 $ 11,294.76 $10,496.94
-6%
-7%
-7%
-7%
WorkingCapital(Increase)/Decrease:
$31.16 $153.22 $252.96 $333.45 $397.35
392%
65%
32%
19%
$ (17,000.00) $ (17,000.00) $ (15,799.18) $ (14,683.19) $(13,646.02)
0%
7%
7%
7%
Less:CapitalExpenditures:
UnleveredFreeCashFlow
PresentValueofFreeCashFlow
$(5,004) (2,638) $(159) $2,160 $4,956
47%
94%
1457%
129%
$(4,801) $(2,330) $(129) $1,617 $3,416
51%
94%
1349%
111%
NormalDiscountPeriod:
Mid-YearDiscount:
FreeCashFlowGrowthRate:
1.000
0.500
2.000
1.500
3.000
2.500
4.000
3.500
5.000
4.500
47.3%
94.0%
1457.2%
129.5%
I. Macroeconomic Discussion
Ø Wefeeloilhascurrentlyfoundaflooratearlierlevels.SaudiArabiadraggedareluctant
OPEC along with it on a supply-fueled bid to increase their market share in world oil
markets in 2014. Saudi’s aim: a test of the strength and robustness of non-OPEC oil
production, explicitly aimed at a band of high-cost, unconventional producers rapidly
appearingonthehorizon.SaudiandOPEC’sproductionoverloadforcedmanyUSoilrigs
tocallitquits.NorthAmericais501rotaryrigs(53.8%)lowerthanlastyear.However,
above$45/$50andamyriadofUSoilrigscomebackonline,shortlyfollowedbyshale
30
IntegratedOilandGas
BPP.L.C
25thApril2016
pipelinesthatswitchonlikeatap.
Ø Marketdynamicsarechangingfast.Outputisslippingallovertheplace:inChina,Latin
America,Kazakhstan,Algeria,theNorthSea.TheUSshaleindustryhasrolledover,though
ithastakenfarlongerthantheSaudisexpectedwhentheyfirstfloodedthemarketin
November 2014. The US Energy Department expects total US output to drop to 8.6m
barrelsperday(b/d)thisyearfrom9.4mlastyear.Chinaisfillingupthenewsitesofits
strategicpetroleumreservesatarecordpace.Itsoilimportshavejumpedto8mb/dthis
yearfrom6.7min2015,soakingupalargepartoftheglobalglut.
Ø Therearealsocertainrisksaroundtheoilprice.Saudi’sprimaryfoeisIran.International
sanctionshavebeenliftedagainstIranafterscalingbackitsnuclearprogram.Ultimately,
this means that Iran are free to export oil causing even extra supply to the already
strugglingindustry.Atcurrentoilpricesitisn’tfeasibleforIrantoproduceatitshighs.
However,itultimatelyhastheresourcestokeepWorldproductionatitshighs.Wefeel
energy demand will continue to grow as economy’s grow. Now, the global economic
fundamentalsareshiftingasChina,stillavasteconomyslowsdownfromitsperiodof
hyper-growth, and new countries such as India are anticipated to play a more
prominentroleinthefutureoftheglobaleconomy.Therefore,weareultimatelyhappy
withourpriceprojectionsandthatoilwilltradeatmuchlowerlevelsthanrecenthighs
forlonger.
Important Disclaimer
Please read this document before reading this report.
This report has been written by MBA students at Yale's School of Management in
partial fulfillment of their course requirements. The report is a student and not a
professional report. It is intended solely to serve as an example of student work at
Yale’s School of Management. It is not intended as investment advice. It is based on
publicly available information and may not be complete analyses of all relevant data.
If you use this report for any purpose, you do so at your own risk.
YALE UNIVERSITY, YALE SCHOOL OF MANAGEMENT, AND YALE UNIVERSITY’S
OFFICERS,FELLOWS,FACULTY,STAFF,ANDSTUDENTSMAKENOREPRESENTATIONS
ORWARRANTIES,EXPRESSORIMPLIED,ABOUTTHEACCURACYORSUITABILITYFOR
ANY USE OF THESE REPORTS, AND EXPRESSLY DISCLAIM RESPONSIBIITY FOR ANY
LOSSORDAMAGE,DIRECTORINDIRECT,CAUSEDBYUSEOFORRELIANCEONTHESE
REPORTS.
31

BP - Analyst Reports

Transcription

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