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BP To Cut Jobs And Capital Spending

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Screen Shot 2014-12-04 at 20.54.03Bidness Etc discusses the capital spending reduction and job cuts planned by BP for this year and the reasons for doing so. Future prospects of the oil giant are also looked upon

Published: Jan 8, 2015 at 8:56 am EST

BP plc (ADR) (NYSE:BP) is looking to divest more assets in the US as effects of lower crude price continue to take their toll on the oil companies. Crude oil price since June has fallen over 50%. West Texas Intermediate during pre-market trading on Thursday gained 0.3% to $48.9, while Brent crude was trading at $51.2 per barrel. Currently crude oil price is hovering around its five-and-a-half year low.

In addition to falling oil price, the British oil major has been charged a maximum fine of $18 billion regarding the 2010 Gulf of Mexico oil spill. Therefore, to improve its liquidity position BP is undertaking major divestments and has significantly reduced capital spending. BP has undertaken asset divestitures of $42 billion and further asset divestitures worth $10 billion are expected by the end of this year.

Adding to the divestitures, the company has reduced capital spending, vendor spending, and salaries of employees. In 2012, the company undertook capital expenditure of $10.5 billion. In 2013, the number was down 15.3% to $9.1 billion. Similarly the salaries and benefits paid to the employees amounting to $5.5 billion in 2012 fell to $4.9 billion in 2013. Spending on vendor spending also fell 12% to $22 billion in 2013.

The company has now indicated to adopt a “value-over-volume” program, in which more focus would be on quality rather than high volumes. To comply with the new strategy BP announced earlier in December 2014 to cut significant amount of its US workforce. Before the start of 2013, BP employed around 20,000 workers in the US. In 2013, the number was cut by 2,000 with more cutoffs expected in 2015. BP has also sold its stake in four Alaskan oilfields to Hillcorp.

Oil and gas production for BP has fallen. The company’s production in 2012 stood at 675,000 barrels of oil equivalent per day (boe/d). However, the number was reduced to 628,000 boe/d in 2013. The London-based company in July signed a deal with Pantera Energy Co. worth $390 million. In accordance with the deal, BP would sell 270,000 acres of land in the Sherman and Monroe counties in Texas.

BP stock is up 1.5% during pre-market hours today to $36.47. Since 2010, the stock has tumbled over 36%. The divestments and the cutbacks are required by the company to rejuvenate investor confidence. Divestments, layoffs, and reduction in capital spending will mean that the company will have more cashavailable to be distributed to the shareholders.

Out of the 15 analysts who cover BP stock, six rate it a Buy and remaining analysts have given it a Hold rating. The average 12-month target price on the stock is $46.57. On January 5, Oswald Clint, an analyst at Sanford C. Bernstein Ltd., reiterated a Market Perform rating on the stock but slashed the 12-month target price by 18% to $41.

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