Abu Dhabi, UAESunday 15 September 2019

BP posts huge rise in fourth-quarter profit

Update: Oil and gas output surge on back of BHP acquisition helps push earnings up 65 per cent

BP Eastern Trough Area Project oil platform in the North Sea. The energy major's profits soared. Reuters
BP Eastern Trough Area Project oil platform in the North Sea. The energy major's profits soared. Reuters

BP on Tuesday reported a 65 per cent rise in fourth-quarter profit, beating forecasts, as oil and gas output rose sharply following the acquisition of BHP's US shale assets.

Fourth-quarter underlying replacement cost profit, the company's definition of net income, reached $3.5 billion, exceeding a company-provided forecast of $2.63bn.

That compared with a profit of $2.11bn a year earlier and $3.84bn in the third quarter of 2018.

For the year, BP's profit rose to $12.7bn, double the previous year's $6.17bn, Reuters said. Analysts expected 2018 profits of $11.88bn.

Upstream facilities, such as oil platforms, ran with record reliability of 96 per cent, the company said. Return on average capital employed was 11.2 per cent last year, up from 5.8 per cent in 2017. Royal Dutch Shell’s comparable number was 7.6 per cent.

Refining throughput was also the highest ever and continued to benefit from access to relatively cheap crude in North America. BP said its downstream unit had its best fourth quarter ever, while full-year underlying earnings before interest and tax were $7.56bn. That beat even 2015, when a slump in crude prices delivered a stellar year for global refining and trading.

“It’s been a good quarter, it’s been a good year,” chief executiveBob Dudley said. “The best year on safety, which means reliable operations, which leads to good financial results.”

Investors seemed to agree, sending BP shares as much as 4.3 per cent higher to 542.40 pence as of 8:09am in London, the biggest increase in a month.

“We see this as a strong set of results,” RBC Capital Markets analyst Biraj Borkhataria said in a note. “We see the right balance of growth, longevity and defensiveness in the business.”

BP faces a trickier balancing act between output growth with financial discipline than some of its peers, according to Bloomberg. It’s still recovering from the 2010 Deepwater Horizon catastrophe, which killed 11 people and cost it more than $60bn in penalties and compensation.

BP purchased $10.5bn of shale assets from BHP, paying entirely in cash. It plans to sell as much as $6bn of older US onshore fields to reduce debt accrued in the purchase. The company exceeded its $3bn divestment programme for 2018.

Gearing, the ratio of net debt to total equity, rose to 30.3 per cent last quarter, the highest level in at least a decade. BP has said indebtedness will fall as new projects come online and cash flow rises, although that will now happen more slowly than previously anticipated.

In the previous quarter, the company told investors to expect it to return to the middle of its 20 per cent to 30 per cent target range by the end of 2019. Today it said that will now happen in 2020.

"We’ll bring the gearing back down,” Dudley said in an interview with Bloomberg television. “I’m not concerned about ticking outside the range a little bit.”

Updated: February 5, 2019 01:13 PM