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BPX, Gulf of Mexico Lead BP's Growth Story as Governance Concerns Linger, RBC Says
Governance concerns continue to cloud BP's (BP) investment case even as management maintains its strategy and RBC sees room for the shares to outperform, RBC Capital Markets said in a Thursday note.RBC said former Chair Albert Manifold became part of BP's equity story because many investors viewed him as a catalyst for change across the company.BP Chief Financial Officer Kate Thomson told investors the company's strategy remains intact and continues to prioritize debt reduction and operational efficiency.Some investors devoted significant attention to governance issues, while others treated the topic as a secondary concern during recent meetings, according to RBC.Thomson described BPX, BP's US onshore business, as "the core of the core," with production rising from 300,000 barrels of oil equivalent per day in 2021 to 500,000 boe/d last quarter and targeting 650,000 boe/d by 2030.Thomson said BP could increase its liquefied natural gas exposure through physical integration or synthetic contracts and has hedged about 70% of this year's gas production at around $4 per million British thermal units.BP expects Gulf of Mexico output to reach about 375,000 to 400,000 boe/d over the medium term, supported by Kaskida in 2029 and Tiber in 2030, each designed to add 80,000 b/d of gross capacity.In Brazil, BP plans to begin appraisal work at Bumerangue later this year through two appraisal wells and a drill-stem test as it gathers additional reservoir data.Management said BP could bring in a local partner for the Bumerangue project, potentially including Petrobras, to help navigate regulatory and approval processes in Brazil.BP does not expect to farm down the asset at this stage because only one well has been drilled, making it difficult for buyers and sellers to establish an appropriate valuation, Thomson said.BP also plans to drill a well in the nearby Tupinamba block later this year as it advances exploration activity around the Bumerangue discovery.Management said BP has reduced its Egypt receivables balance to zero after maintaining investment commitments in the country.BP has already reduced refining capacity from 1.9 million b/d in 2019 to 1.3 million b/d following the Gelsenkirchen transaction and does not expect major downstream divestments beyond selected marketing assets.RBC said BP should reshape its messaging around a smaller group of high-impact assets, mirroring how major US peers emphasize a limited number of flagship growth projects.RBC said a supportive commodity backdrop continues to strengthen BP's investment case, although investors remain focused on the company's medium-term growth plans and longer-term balance sheet objectives.RBC said BP's estimated 2027 free cash flow yield of 12.4% exceeds the peer average of 8.3%, and reiterated its Outperform rating as debt reduction and cost improvements could support further upside.Price: $43.69, Change: $+0.74, Percent Change: +1.72%
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