We maintain our Neutral recommendation for BP Plc. (BP) despite its current battle with the disastrous oil spill in the Gulf of Mexico. While the oil giant is incurring huge costs to prevent the spill, significantly overshadowing better-than-expected first quarter results, we believe that its dividend is safe and its $20 billion capex plan will remain in place on the back of solid operating cash flows.
BP’s market value has been significantly reduced due to the impact of the oil spill in the Gulf of Mexico on Apr 21, 2010. Though the company has been actively fighting the disaster, success is yet to be achieved.
BP has decided to apply the Lower Marine Riser Package (LMRP) Cap Containment System to stop the oil spill. In a statement released on last Saturday, the company said that the cap is already on site and will be placed as soon as possible to capture most of the oil and gas flowing from the well. In addition to all these initiatives, the company continues to drill two relief wells that are aimed to stop this spill completely.
The company said yesterday that it plans to further enhance the LMRP containment system through the use of the hoses and manifold (an arrangement of piping or valves designed to control, distribute and often monitor fluid flow). The process will increase the efficiency of the containment operation by increasing the amount of oil and gas flow that can be captured from the well.
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