BP bucks trend as profit beats expectations

Supermajor gains on rising oil and gas production as results contrast with Total and Norway's Equinor, which both reported sharp earning drops

BP chief executive Bob Dudley. BP beat expectations and increased its cash flow on higher production. Bloomberg
BP chief executive Bob Dudley. BP beat expectations and increased its cash flow on higher production. Bloomberg

A strong increase in oil and gas production helped BP offset weaker crude prices and refining earnings to beat second-quarter profit expectations on Tuesday, lifting its shares.

BP's result contrasts with Total and Norway's Equinor, which both reported sharp earning drops and builds on a steady recovery following deep cost cuts since the 2014 downturn, project start-ups and last year's $10.5 billion (Dh3.67bn) acquisition of BHP's US shale assets.

Shares in BP were up 3.2 per cent at 07.48 GMT, compared with a 0.2 per cent gain in the broader FTSE index.

"At the midpoint of our five-year plan, BP is right on target," chief executive Bob Dudley said.

BP's underlying replacement cost profit, the company's definition of net income, reached $2.8 billion in the second quarter, exceeding a company-provided forecast of $2.46bn.

The second quarter profit was up from $2.4bn in the previous quarter.

The results beat expectations for ten quarters in a row, analysts at Bernstein said.

"Strong volume growth from accretive barrels and seamless execution remains underappreciated," said Bernstein, which has an "outperform" recommendation on the stock.

The company's operating cash flow recovered to $6.8bn in the quarter from $5.3bn in the previous quarter as a result of a one-off working capital release.

Second-quarter production rose to 3.8 million barrels of oil equivalent per day, 4 per cent higher than a year earlier.

BP said it expects third-quarter 2019 reported production to be lower than second-quarter, reflecting maintenance activities as well as the impact of Hurricane Barry on operations in the US Gulf of Mexico.

Benchmark Brent crude oil prices in the second quarter averaged around $69 a barrel, up from $63 the previous quarter but down from $74 a barrel a year earlier, BP said.

In the refining and marketing segment, known as downstream, profits dropped due to lower sales and refinery throughput as plants underwent maintenance ahead of a major change in marine fuel standards in 2020.

Global growth in oil demand slowed in the first half of the year to around 1 million barrels per day but has slightly recovered in the second half, said BP's chief financial officer Brian Gilvary.

Despite the higher profit, BP's debts rose in the first half of the year to $46.5bn from $38.7bn the previous year, mostly as a result of the BHP acquisition.

Gearing, the ratio between debt and BP's market value, rose to 31 per ent compared with 27.5 per cent.

BP rival Royal Dutch Shell is due to report results on Thursday, while Exxon Mobil and Chevron are both scheduled for Friday.

Published: July 30, 2019 12:07 PM

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