BP profits soar in Q1 on "exceptional" gas marketing, trading (Update)
(Updates with comments from analysts' conference call)
BP posted an underlying replacement cost (RC) profit of $2.63bn for the three months ending March 31, versus $115mn in the previous quarter and $791mn in the first three months of 2020.
Higher margin production in the Raven gasfield in Egypt, the KG-D6 field in India and further development of the Mad Dog oilfield in the US Gulf of Mexico would yield more value per barrel of oil equivalent for the company in the near term than its existing portfolio, CEO Bernard Looneyy told analysts.
But he warned of continuing uncertainties that would limit BP's ability to give guidance more than a quarter ahead at a time: surplus oil production capacity and the rollout of the vaccination programmes being key.
"This result was driven by an exceptional gas marketing and trading performance, significantly higher oil prices and higher refining margins," the UK major said on April 27. The company does not provide details of the trading successes but the US storm in Texas and the Asian LNG market were both contributing factors listed by Looney in the conference call. The company can arbitrage across regions, commodities and time to maximise its trading profit.
Gas and power prices in both markets had hit exceptionally high levels. CFO Murray Auchincloss said the company board had strict oversight of trading and ensured that long and short positions were kept within limits, dismissing a suggestion that the gains were risky. "We don't take positions naked," he said. Looney said that Texas was not only an important production area but also BP's home in the US.
Operating cash flow surged to $6.11bn in Q1 2021 from $2.27bn in Q4 2020 and $952mn in Q1 2020. BP also confirmed it had brought its net debt back down under $35bn as expected, with it reaching $33.3bn at the end of March, compared with $38.9bn three months earlier. The company has now retired its debt target, with shareholder returns and strengthening the balance sheet being its main focus for capital spending.
The company earned $4.7bn in disposal proceeds during the quarter, including $2.4bn from the sale of a 20% interest in Oman's Block 61 to Thailand's PTTEP and a $1bn final payment from the divestment of its petrochemicals business to the UK's Ineos.
That takes it close to its target for the year of $5bn-6bn but Looney said the company would not accelerate its sales programme although he was pleased and surprised by the progress to date. Asset sales would continue to be conditional on value, such as BP had achieved from the Oman sale, Looney said, and could come from upstream, downstream or infrastructure assets.
BP intends to resume share buybacks at a cost of around $500mn in the second quarter. Its share price was up 1.5% as of 09:00 UK time, trading at £3.01 ($4.18)/share.
BP's gas and low carbon energy business generated $3.43bn in RC profit before interest and tax in the latest quarter, versus a loss of $638mn in Q4 2020 and an income of $1.07bn in Q1 2020. Its oil production operations earned $1.48bn, versus $66mn in Q4 2020 and a $179mn loss in Q1 2020.
The company's customer and products segment produced $934mn in pre-tax RC profit, up from $664mn a year earlier, while its minority share in Rosneft booked $363mn in income versus a $17mn loss.
BP is looking to transform itself from oil and gas major to integrated energy group, with plans to scale back hydrocarbon production by 40% over the next decade, while expanding its renewable energy capacity 20-fold to 50 GW during the period. Looney made much of the optionality that its offshore wind in the UK gave it: analysts had suggested the company had overpaid for the latest awards in the Irish Sea but he said that this was a sector where a company with BP's inhouse expertise upstream could capitalise on, even if it did decide to sell down later.
"This quarter demonstrates what we mean by performing while transforming," CEO Bernard Looney said. "With the acceleration of divestment proceeds, together with strong business performance and the recovery in the price environment, we generated strong cash flow and delivered on our net debt target around a year early."