British Petroleum (BP) #1 [9]

BP p.l.c. is an oil company with four main businesses:
Exploration and Production, Gas, Power and Renewables, Refining
and Marketing, and Petrochemicals. Exploration and Production
includes oil and natural gas exploration and field development
and production, together with pipeline transportation and
natural gas processing. Since 1997, BP has increased its
reserve base from 8.6 billion barrels of oil equivalent to 18.3
billion.

The company is also the largest oil company involved with
alternative sources of energy. BP is advertising itself as
Beyond Petroleum. The company is pursuing opportunities in the
growing Liquefied Natural Gas (LNG) market, and we find this
diversified strategy attractive in this environment.

BP's operating efficiencies are evident from the fact that
despite tying-up substantial amounts of capital in ongoing
development projects, it has maintained competitive returns on
capital. The company's returns should move-up, as these
projects start coming online over the next few years. Also, the
company's disciplined financial management and strong balance
sheet enable it to continue paying significant amounts to
shareholders, both through a growing dividend and through ADS
buybacks. During 2004, BP's ADS dividend increased 13% year-
over-year. Also, BP repurchased 827 million of its outstanding
ADS, for a total of $7.5 billion. Given our outlook for stable
outlays and leverage already within management's targeted
range, prospects remain positive for continued capital returns
to shareholders.

Additionally, we like the solid 3% dividend yield on BP.
Management is shareholder-friendly and vows to return 100% of
free cash flows to investors as long as crude oil stays above
$20 a barrel. With crude oil flirting with $60 a barrel, cash
flows to investors should be quite ample for as far as the eye
can see. The diversified nature of their business and their
emphasis on alternative sources of energy draw us to the stock.

As with every other energy company, BP is enjoying the fruits
of record-high oil prices. With crude prices around $65 a
barrel, the company is minting money and throwing off large
amounts of cash flows back to shareholders. Analysts have been
raising their estimates in earnest over the past three months.
Over that time period, estimates for the year ending December
2005 have increased almost 15% to $6.55. This is even more
impressive when you consider the sheer size of the company. It
seems apparent that crude oil will remain elevated for the
foreseeable future, which means estimates for the future are
bound to go up as well.