The third quarter was particularly brutal as the price of worldwide benchmark Brent crude dropped to less than around $45 a barrel, its lowest level since the financial crisis, and averaged around $50, roughly half its level during the same period a year ago.
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BP reported third-quarter profit that beat analysts’ estimates after oil’s crash helped the United Kingdom energy company earn more from processing crude into fuels.
“Our principal objective is to re-establish the balance in BP’s financial framework, with operating cash flow covering capital expenditure and the dividend”, Chief Financial Officer Brian Gilvary said.
BP is the first of the world’s five largest non-state oil companies to announce earnings for the period.
Nevertheless, the oil major’s shares on the FTSE 100 index were up 1.5 per cent, or 4.9p, at 389.2p in early trade as the results exceeded analysts’ estimates for profit of $1.2billion (£780 million). The company booked a restructuring charge of $US151 million in the period and expects cumulative restructuring charges from the beginning of the fourth quarter of 2014 to the end of 2016 to total around $US2.5 billion. BP is among worldwide oil producers to forecast a prolonged price slump as global supply swamps demand.
BP’s pretax adjusted profit from its downstream segment, which includes refining and trading, jumped to $2.3 billion from $1.5 billion.
‘BP’s longer term outlook remains positive despite the interim hurdles and investors are certainly being paid to wait – the current dividend yield of 6.2 per cent is extremely punchy given the current interest rate environment and is a particular attraction to those seeking income’.
The knock-on effect has been a drastic reduction in capital spending – the Guardian reports that BP expects to spend $19bn on projects this year, down from $26bn in 2014. A year ago, BP was budgeting to spend around $25bn.
BP will allow itself a degree more leverage, now that the bulk of costs related to the oil spill are behind it. Gearing of around 20% will be targeted, versus a 10-20% target range adopted after the spill in 2010.
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In conclusion, Bob Dudley said: “BP has successfully adapted to changing circumstances many times in its history and, in a hard time for the entire industry, I believe we will once again successfully take on today’s challenges”. We are already in action, with a quality portfolio and clear plans for the future, underpinned by enduring principles.
