Member Info for Sekforde

No one can possibly know what will happen to oil prices. Brent went up to $139 per barrel. And then came crashing down. But the average Brent price last year was just over $70 and BP made £9.5 bn. This year if the average price is $90 (even without any dividends from Rosneft) the profits should exceed £12 bn. And then on the fairly near horizon (2030) there is perhaps £8 bn a year from renewables. So at the present market cap BP is a bit like investing £73,000 to receive £12,000 a year for 8 years and then £20,000 a year in perpetuity - all indexed link to the inflation rate. That is on a risk neutral assumption that oil prices neither falls nor rise. I think any sane person would pay at least £200,000 for that sort of deal : ergo BP should be worth at least £200 bn. But markets are sometimes insane for a long time. But the gobbling up of cheap shares continues.

Slater no comments on this board would have any effect on the price of BP. But it is in fact the case that much of BP's costs (wages and so on) are in pounds but their products are sold in dollars. So a lower exchange rate against the dollar is a further advantage. Any how roll on 3rd May and we will then have a very good steer to the rest of the year. There are 5 key unknowns. 1. Amount of debt repaid. 2. Forecast dividends. 3. Forecast share buybacks. 4. Amount of hedging. 5. Rosneft stake progress. I expect good news on all 5 unknowns and a good lift that day after Looney's sunny upbeat presentation.

BP indicated that it would increase the dividend by at least 4% in US dollars. At $1.27 to £ this means the total dividend this year should be at least 17.88 pence a share which is a yield of 4.8% which is way more than the FTSE 100 (around 3.5%). But in reality share buy backs are the equivalent of dividends. If £4.8bn of shares are purchased this year then that is an additional 6.57%. So the total returns to share holders are 11.37% for 2022 at present market cap. In other words if the market cap. remains constant the share price must rise 6.57% to take account of the cancelled shares. (Slight over simplification but only slight ) In fact it is reasonable to think that the market cap. itself will rise over the year. There are three factors. One is inflation which lifts the money value of assets and at the same time erodes the real value of debt. The second is that the debt is being retired at a rate of at least £6bn a year. The third is that we will be a year closer to rewards from the renewable investments. And on Rosneft I think there will be a buyer. The shares are still traded and so do in fact have value. It is not a terrible loss. True BP collected dividends of around £700m a year but this is the equivalent of around $4 per barrel on the oil price. It should get around £6 bn for its stake assuming a mighty discount.

And also by the way the share buy backs at £24M a trading day seem to be continuing. The Board should announce that at present prices it will do £4.8 bn a year. Now 3200 a point long with IG and brimming with confidence.

The headline figures on 3rd May will show a huge loss because of the Rosneft mark down in value. But the key figure to look at is how much debt has been repaid in a quarter. I think it could be around $4bn.This will enable investors to project forward and see when BP will be debt free if the price of Brent remains above $100. The case for a special tax is very weak. BP investors have done terribly over 10 years. And the last think to do is to deter investment by taxing so called "windfall" profits during these good times. Emphasising the journey BP is on to a sustainable future is great politics. And Looney the brilliant Irishman will do just that.

Why is Looney being blamed for any thing? He has only been at his post two years and was not responsible for the collapse of oil prices during the pandemic nor Putin's decision to invade Ukraine which cost BP its Rosneft stake. But what makes him a visionary is that he has mapped out a clear and disciplined future for the company. The transition from hydrocarbons to renewables is the right approach and it will be highly profitable. The ratio of debt repayment to share buy backs 40:60 is also right. And there is no evidence he sold his shares. There would have to be an RNS announcement if that had happened and I do not see one. I am looking forward to the first quarters results which will I think see an announcement of considerable more share purchases large debt repayments and perhaps a higher than promised dividend.

I do not think any one should assume oil prices will fall or rise. The neutral assumption is that they will stay the same albeit adjusted for inflation. BP's present dividend plans and minimum share buybacks of £3bn assume only that Brent remains above around $60 in real terms. People do get disillusioned with particular shares when there is decades of poor performance. But the point is that that makes the share buy backs cheaper than they should be. The new CEO is a visionary and should repair the poor image over time. Sentiment changes very quickly even in this sector. Look what has happened to Harbour Energy....

This company should yield in 2022 over 10%. First the dividend with the promised 4% uplift is 4.25%. But the share buy backs seem to be averaging about £24M a day. Over 200 trading days that is £4.8bn against a market cap of £78bn or 6.15%. But I am also interested to see how much debt has been paid back in the last quarter. I reckon BP could be debt free in 2024 and then it can devote even more sums to dividends and share buy backs. The share price was well above £5 before the pandemic and I can see us getting close to that as the summer rolls on and oil and gas prices remain high.

No you would be stuck with their contracts.

At £4.62 bn it now qualifies clearly as a FTSE. So all very exciting.

I think there is a very good chance that spot price of oil could fall. Most of the Russian oil and gas will in fact get to the market in one form or other . China does not seem bothered about mass slaughter when it come to money making. Elevated prices have in the past destroyed demand quite significantly and quickly. So forward hedging may make sense at these levels and I bet Harbour is doing a fair bit of it right now. Linda Cook did address the EIG offloading fear by suggesting they were long term investors. And Tolmount is coming on stream fully in about 2 weeks. I sold Amazon in 2016 after what seemed like a massive profit hoping to get back in later. Well you know what happened..... So do not trade just hold and hold.....

I think £7 a share is very realistic. That would imply a market cap. of about £6.5bn. At the presentation last week the board suggested that the free cash flow would be between $1.5 and $1.7 bn in 2022. But that that was before the latest oil price surge which has affected of course all the forward prices as well. Also the board was being cautious about forecast production given the company achieved 219,000 barrels a day in January and February. Realistically the free cash flow should be about $2bn for 2022 and more for 2023 as the bad hedges unwind. $2bn is around £1.5bn. I would not have thought £6.5bn was a crazy valuation for a company generating £3bn over the next 24 months. In fact I would say it was very cheap. I have 750 a point with IG but have sold the May oil futures as a sort of hedge. I really like BP for similar reasons. Its yield is 4.25% but really over 10% if you include promised buy backs. Happy days so far. These are unfashionable stocks at the moment and should be bought and retained through all the short term volatility.

jan-Feb 2022

If one looks at the graph provided at the presentation, debt fell by 17% over January and February 2021. At the current level of oil and gas prices, debt could be eliminated completely before the end of this year. I calculate Harbour is now the 100th largest company by market cap so could soon be promoted to the FTSE 100. It is tempting to sell after the recent surge. But the current valuation remains very low indeed against free cash flow for 2023 and 2024.

Boris ruled out a windfall tax in Parliament. And it would be hard to justify. Shareholders in big oil and little oil have had some of the worse returns over the last 20 years. Large profits are needed to spur investment in the North Sea.

The results were excellent. The key point is to consider how the market will value the company with its debt eliminated in less than 18 months time and with production unhedged or hedged at far higher levels for 2024 and 2025. I watched the webinar and was impressed by the clarity of purpose. I could see the $200M promised dividends rising to $500M this year. With debt eliminated the dividends could easily be $1bn a year in 2025.