BP plc (ADR) (NYSE:BP)’s shareholders should get excited again, as the company intends to return around $8 billion in cash to its shareholders in the next 12-18 months in a form of share buybacks. The share repurchase announcement was made after it had traded its 50% stake in its Russian business TNK-BP to Rosneft for $12.5 billion in cash and a 18.5% stake in Rosneft. In the past twelve months, BP has lost more than 9.2% of its total market value to land at around $42 per share. Is BP a buy after the deal with Rosneft and the stock repurchase plan? Let’s find out.
Sluggish share performance since Gulf of Mexico crisis
BP plc (ADR) (NYSE:BP)’s share price has been sluggish since the oil spill crisis in the Gulf of Mexico. In April 2010, BP's stock dropped significantly from nearly $60 per share to only $27 per share, and it has stayed in the range of $37 - $44 since the beginning of 2011. BP has estimated that it would take around $40 billion to clean up the mess in the Gulf. According to BP plc (ADR) (NYSE:BP), it has paid out $10.43 billion in claims to individuals, businesses and the government. I think BP could meet the claims quite comfortably, as it kept generating consistent positive cash flow. In 2010, its operating cash flow was pushed down to the lowest level at $13.6 billion. In 2012, BP’s operating cash flow was around $20.4 billion.
The TNK-BP deal would give BP a lot of financial flexibility
Shareholders of the British oil giant should be happy after BP plc (ADR) (NYSE:BP) completes its major restructure in its Russian oil business with Rosneft. After the deal, BP will receive around $12.5 billion in cash, including about $710 million in dividends from TNK-BP, and an 18.5% stake in Rosneft. Thus, combined with the existing 1.25% stake, BP would own a 19.75% interest in Rosneft. According to the company’s recent press release on March 22, the $8 billion share repurchase is equivalent to the total investment outlay that BP invested in TNK-BP in 2003.
Highest dividend yield
In the end of 2012, BP had the total proved reserves of 17 billion BOE, while Exxon Mobil Corporation (NYSE:XOM)’s proved reserves were around 25.2 billion BOE. Chevron Corporation (NYSE:CVX) had the smallest proved reserves among the three, at around 11.35 billion BOE.
At $42 per share, BP is worth around $133.8 billion. The market values BP at only 5.74 times EV/EBITDA. However, BP has the most expensive valuation among the three. Chevron is trading around $120 per share, with a total market cap of $233.4 billion. It is valued even cheaper than BP on the market, at only 4.66 times EV/EBITDA. Exxon Mobil Corporation (NYSE:XOM) is the largest oil company among the three, with $398.8 billion in total market cap. At $89 per share, it is valued at 5.48 times EV/EBITDA.