BP Stung by Low Prices, Hurricane Impact in Q3 (Update)
(Adds comments from analysts' call)
BP reported a 41% slump in profits in the third quarter, blaming the decline on low oil prices, maintenance, divestment-linked charges and the impact of Hurricane Barry in the Gulf of Mexico.
Underlying replacement cost profit swung to $2.25bn in the three months ending September 30, the major reported on October 29, from $3.84bn in the corresponding period of 2018. BP booked $2.6bn in non-cash charges, which it warned about earlier this month, relating to its fast-tracked plan to divest $10bn of assets by the end of the year. As a result, it suffered a loss attributable to shareholders of $749mn, compared with a $3.35bn profit a year earlier.
CFO Brian Gilvary told analysts that sales so far amounted to $7.3bn but the plan had been to raise "more than" $10bn over two years. The remaining $2.8bn of sales this year will be followed by further sales, he said. The disposals were upstream and mainly cash negative, with the exception of the Hilcorp sale (see below) and would have no impact on future earnings targets, he said. Those to come later this year however are a mix of up, down and mid-stream assets.
Underlying upstream profit before interest and tax tanked to $2.14bn, from nearly $4bn in the third quarter of 2018, on the back of a 23% slide in realised oil and gas prices. Production, excluding contributions from BP’s 19.5% stake in Russia’s Rosneft, came to 2.568mn barrels of oil equivalent/day, up 4.4% y/y but down 2.2% quarter on quarter. Output was affected by increased seasonal turnaround and maintenance, as well as Hurricane Barry, which forced BP to shutdown facilities in the Gulf of Mexico for 14 days. It said it lost net 100,000 barrels of oil/day, but that "the majority" of that would be back this quarter.
Commenting on the gas market, Gilvary said roughly a third of its output was sold domestically in places such as Oman and Egypt; another third was sold at hubs; and another third, its LNG, was sold on oil indexed prices. Hub prices are much lower than they were a year ago. US liquefaction capacity will be underutilised until the end of 2021, he thought, with some strength coming back in 2022. This means its west African LNG projects based on the offshore Mauritania and Senegal gas reserves would be unaffected: "We will proceed as per plan," he said. He also said that the reserves figures quoted October 28 by Kosmos for Orca had not been proved up.
Despite difficult conditions, outgoing CEO Bob Dudley said BP had nevertheless achieved strong cash flow and was delivering on its strategic objectives.
“Our focus remains firmly on maintaining financial discipline and delivering safe and reliable operations throughout BP,” Dudley said in a statement. “We’re also continuing to advance our strategy, making strong progress with our divestment plans and building exciting new opportunities in fast-growing downstream markets in Asia.”
Net cash from operations came to $6.056bn in the third quarter, only slightly down from $6.092bn a year earlier. BP’s divestment drive is largely focused on the US, where it reached a deal in August to sell its Alaskan upstream and midstream operations to Houston-based Hilcorp for $5.6bn.
Dudley is due to step down in February after a decade at BP’s helm, with company insider Bernard Looney, currently its upstream head, appointed to replace him.