What's Next for BP?


LONDON -- A year ago, I wrote the article "A Year of Shocks for BP." A year later, it has been a year of recovery for BP .

The company has been busy paying off the liabilities after the Deepwater Horizon accident. Let's not mince our words: This oil spill had a devastating effect on the company, causing the share price to crash, but since the accident BP has been working very hard to come back from this.

Recovering from the oil spill
I see a couple of phases to BP's recovery. First, it has to sell off non-core assets and pay off all the costs associated with the Gulf of Mexico oil spill. Sorting this out has been its first priority.

The company has made good progress in this, although the oil spill has been hugely expensive for the business. Although the company has travelled far down this road, there is further to go.

Once the current trial in New Orleans is over, BP may finally be able to draw this tumultuous chapter in its history to a close.

Then seeking out growth
Then there is the second phase to the British oil group's recovery: seeking out growth for the future. The difficulty that BP faces, along with other independent oil companies such as Shell and Exxon-Mobil, is a world of steadily decreasing oil reserves.

The world's oil may not yet be running out, but what remains of the world's oil is getting ever more difficult and more expensive to extract. The simple question that every oil major faces is: how can it replace its oil reserves cost effectively? It's not an easy task.

The added complication is that much of the remaining global oil reserves are held by governments, not independent oil companies. That's why, while BP has been trying hard to squeeze every drop of oil from places such as the North Sea and the Gulf of the Mexico, it has also been grappling with the great bear to the East.

Grappling with the great bear
BP's tussles with Russia have been well documented. A few years ago, BP chief executive Bob Dudley was chased out of Russia in a battle with the Russian partners in the joint venture TNK-BP.

But Dudley has worked tirelessly to repair relations with Russia, and recently it has been paying off. Russian prime minister Dimitri Medvedev has asked Dudley to sit on the board of Russia's national oil company Rosneft.

BP is finalizing a multibillion pound merger with Rosneft whereby the Russian company will take over BP's holding in TNK-BP, while in return BP will gain a 20% stake in Rosneft. I see this as a good deal for the British oil major.

BP's recovery is well under way. Overall, I see BP as a decent buy.

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The article What's Next for BP? originally appeared on Fool.com.

Prabhat Sakyaowns shares in BP, but not in any of the other companies mentioned in this article. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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