As Decency Requires, BP is Keeping Itself Boring: The Case for Boring

Oil giant BP (BP) is telling investors that its long-term prospects depend on an exciting, “tightly focused” strategy of oil and gas exploration, especially in Russia, and deep water drilling, especially in the Gulf of Mexico. We’ve had enough excitement from BP, and the good news is it’s actually minding its P’s-and-Q’s.

BP’s share price has barely responded to the company’s post-Deepwater Horizon oil spill disaster recovery plan, which executives embellished for analysts earlier this month. The stock hasn’t attracted short-term trading enthusiasts in the same way as fellow integrated oil and gas producer Chevron (CVX). In the last 5 years, Chevron’s shares have gained 22%, against a flat S&P 500 benchmark, while BP has lost 42%.

Given the evolving nature of supply and demand in the energy market, investors seem to be placing their chips on the more aggressive Chevron. Based on the financial statements, BP has chosen on a conservative scheme.

The trend in BP’s capital spending generally has tracked closely with its cash flow from operations and net income. You don’t see signs of wildcatting in the BP financials.

BP Capital Expenditures Quarterly Chart

BP Capital Expenditures Quarterly data by YCharts

ExxonMobil (XOM) data presents an even more comforting pattern for prudent investors, with steady capital spending growth well within the cash-from-operations and net-income trend lines.

XOM Capital Expenditures Quarterly Chart

XOM Capital Expenditures Quarterly data by YCharts

Chevron, by comparison, appears to be plunging into exploration and production growth while its underlying fundamentals – cash from operations and net income – are slipping. The company is boosting annual capital spending by 12% in 2013, to $36.7 billion, aimed at oil and gas production projects in Australia, Nigeria and the U.S. Gulf of Mexico.

CVX Capital Expenditures Quarterly Chart

CVX Capital Expenditures Quarterly data by YCharts

BP lost its long-standing equity market capitalization lead over Chevron after the April 2010 Deepwater Horizon blowout. As YCharts noted recently, the company wants to rebound. So far, BP hasn’t lost its head in that effort – good news for investors who like BP’s dividend yield.

Bill Barnhart, a contributing editor at YCharts, is a 36-year veteran of business reporting. Most recently he was the financial columnist for the Chicago Tribune, where he offered daily commentary on financial markets. He is a past president of the Society of American Business Editors and Writers. He can be reached at editor@ycharts.com.

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