Chief Executive Tony Hayward expects cash flow to be balanced in 2009 within an oil price range of $50 to $60 a barrel.
Estimated Net Present Value (NPV) of $74 a share is more than 70% above stock price for moderate-debt, hold-rated BP plc (BP). Released today, fourth quarter results displayed lower unlevered cash flow (Ebitda) driven by crude oil and natural gas prices. Our valuation capitalizes the future year"s cash flow at unlevered multiples (PV/Ebitda) related to reserve life (Adjusted R/P) for natural gas and oil, and to an industry multiple for downstream.
Latest calculations result in NPV concentrated 23% on natural gas, 62% on oil and 16% on downstream. Pointing to expected oil price recovery, futures prices for the next six years averaged $60 a barrel recently. Chief Executive Tony Hayward expects cash flow to be balanced in 2009 within an oil price range of $50 to $60 a barrel. Should oil price surprise on the downside, we see room to reduce capital spending while maintaining the dividend, which offers an annual yield of 7.9% on current stock price.