BP dodges oil-industry gloom as profit jumps with production

London - BP dodged the disappointment that afflicted other oil-company earnings as it did a better job of exploiting the upswing in crude prices.

Oil and gas output rose following the startup of seven new projects last year, helping the London-based giant post a fivefold increase in fourth-quarter profit from a year earlier to the highest since the start of 2015. While cash flow from operations fell slightly, BP avoided any major miss compared with expectations.

“The company is operating and firing on all cylinders,” CEO Bob Dudley said in an interview with Bloomberg television. “We’re looking to generate much higher levels of free cash flow all the way through to the end of the decade and beyond.”

Besting its oil brethren is especially important for BP. In addition to navigating its way out of the worst industry downturn in a generation, the London-based company has the added headwinds of paying the huge bill for 2010’s fatal Deepwater Horizon disaster and oil spill.

Adjusted net income of $2.11bn beat analysts’ expectations of $1.95bn. Net debt fell to $37.8bn at the end of the fourth quarter, down significantly from $39.8bn in the preceding period.

Missed expectations

Fourth-quarter earnings have so far incurred shareholders’ wrath, with sharp sell-offs after Exxon Mobil and Chevron fell short on profit and Royal Dutch Shell missed on cash flow. BP shares fell 2.9% to 468.05 pence at 09:03 as a broader rout in equity markets continued.

Those companies’ failure to fully capitalise on the recovery in global energy markets underscores the complexity of their business model. While rising crude prices buoyed profit from exploration and production, other parts of their sprawling empires suffered from a combination of lousy trading results, one-time US tax charges, output woes or narrowing refining margins.

The standout performer for BP was the rapid rebound in production as new projects started, according to Bloomberg Intelligence analyst Will Hares. Excluding its share of Russia’s Rosneft, BP pumped 2.581 million barrels a day in the fourth quarter, up from 2.186 million barrels a day a year earlier. It expects output to keep rising this year.

“We have been in growth mode” with the largest commissioning of projects in the company’s history, Dudley said. BP has more investment options right now than it can afford and “we’ll pick them carefully, we want higher returns."

Fourth-quarter cash flow from operations, including the impact of payments related to the Gulf of Mexico oil spill, was $5.9bn.

That’s a slight decrease from the preceding period but more than double the year-ago level of $2.43bn.

BP expects the pace of divestments to slow this year. It realized $3.4bn from selling assets in 2017, and that’s forecast to fall to $2bn to $3bn this year. The company spent $343m buying back shares in the fourth quarter, fully offsetting the dilution from scrip dividends issued in the preceding period.

* Sign up to Fin24's top news in your inbox: SUBSCRIBE TO FIN24 NEWSLETTER

Brent Crude
All Share
Top 40
Financial 15
Industrial 25
Resource 10
All JSE data delayed by at least 15 minutes morningstar logo
Company Snapshot
Voting Booth
Do you think it was a good idea for the government to approach the IMF for a $4.3 billion loan to fight Covid-19?
Please select an option Oops! Something went wrong, please try again later.
Yes. We need the money.
11% - 943 votes
It depends on how the funds are used.
74% - 6289 votes
No. We should have gotten the loan elsewhere.
15% - 1293 votes