London, UK : BP Plc today announced its results for the third quarter, with underlying profit at its highest for more than five years. BP reported a surge in profit that beat analyst estimates for the seventh time consecutively, giving the company the confidence to fully fund its $10.5 billion U.S. shale oil deal with cash.
Adjusted net income was the highest since 2012 and Chief Executive Officer Bob Dudley said the shale acquisition will “transform” the company’s position in the U.S. However, abandoning plans to fund part of the BHP Billiton Ltd. deal with shares leaves BP relying on oil prices remaining in their recent range.
It will also mean gearing, the ratio of net debt to equity, will edge above the company’s target of 30 percent in the first quarter. BP will need oil prices to stay strong and execute its divestment plan.
Proceeds from $5 billion to $6 billion of planned asset sales, announced in connection with the shale deal, will now be used to reduce debt. BP said gearing should fall back toward the middle of its 20 to 30 percent target range by the end of next year. It’s raised just $400 million from divestments so far this year.
“Confidence in cash generation” is the main reason BP no longer plans to issue new shares to fund the purchase.
BP posted the highest adjusted net income since 2012 as crude prices rose
BP shares rose 4.1 percent to 557.1 pence as of 8:04 a.m. in London, the biggest jump in a year.
RBC Capital Markets sees “continued earnings momentum both in the upstream and downstream,” analyst Biraj Borkhataria said in a note. “More importantly we expect cash conversion to improve this year.”
Adjusted net income climbed to $3.84 billion in the third quarter from $1.87 billion a year ago. That beat even the highest analyst estimate of $3.23 billion.
The reliability of BP’s refineries was the highest in 15 years, but that performance may not be repeatable due to maintenance at the Whiting plant in the U.S.
Operating cash flow excluding Gulf of Mexico oil spill payments and including working capital for the quarter was $6.6 billion, unchanged from a year earlier.
Oil and gas production of 3.6 million barrels equivalent a day was flat.
Strong earnings and cash flow:
Underlying replacement cost profit for the third quarter of 2018 was $3.8 billion, more than double a year earlier and the highest quarterly result in more than five years, including significant earnings growth from the Upstream and Rosneft.
Operating cash flow excluding Gulf of Mexico oil spill payments for the quarter was $6.6 billion, including a $0.7 billion working capital build (after adjusting for inventory holding gains).
Gulf of Mexico oil spill payments in the quarter were $0.5 billion on a post-tax basis.
Dividend of 10.25 cents a share for the third quarter, 2.5% higher than a year earlier.
Strong operating performance:
Very good reliability, with the highest quarterly refining availability for 15 years and BP-operated Upstream plant reliability of 95%.
Reported oil and gas production was 3.6 million barrels of oil equivalent a day. Upstream underlying production, which excludes Rosneft and is adjusted for portfolio changes and pricing effects, was 6.8% higher than a year earlier, driven by ramp-up of new projects. Rosneft production of 1.2 million barrels of oil equivalent a day was 2.8% higher than last year.
The Thunder Horse Northwest expansion project in the Gulf of Mexico and the Western Flank B project in Australia began production in October, both ahead of schedule. They are BP’s fourth and fifth Upstream major projects to start up in 2018.
Further expansion in fuels marketing, with now around 1,300 convenience partnership sites worldwide and network growth in Mexico.
The acquisition from BHP is expected to complete on 31 October.
Reflecting confidence in cash generation and continued capital discipline, and assuming oil prices remain firm in the recent trading range, BP now expects to fund the entire transaction from available cash, rather than using equity for the deferred consideration. In this case, proceeds from the associated $5-6 billion of divestments will be used to reduce net debt.