BP profit beats estimates even as oil-spill fines push debt higher

Bloomberg

BP Plc capped a shaky Big Oil earnings season on a more upbeat note, as shareholders reacted positively to the highest profit in years even as the continuing burden of oil-spill payments pushed debt higher.
The results show how investors in the London-based company are feeling the effects of two life-altering events. BP is still paying its way through the more than $65 billion of penalties following the fatal Deepwater Horizon catastrophe in 2010. Yet they’re also seeing some benefits from rising crude prices after a three-year industry downturn.
BP’s Chief Financial Officer Brian Gilvary said factors that reduced first-quarter cash flow — increases in working capital and payments related to the oil spill from the Macondo well in the Gulf of Mexico — would fade later in the year.
“We’ve reached the peak now for quarterly payments in terms of Macondo,” Gilvary said in a Bloomberg television interview on Tuesday. Debt will “come down as the year progresses, quarter on quarter, especially given where prices are today.”
BP rose 1.4 percent to 545.7 pence at 11:46 a.m. in London, its highest since May 2010 and the second-best performance on the Stoxx Europe 600 Oil and Gas index.
Cash flow from operations, excluding payments related to spill, was $5.4 billion in the first quarter. The company paid out $1.6 billion on a pretax basis for the Deepwater Horizon disaster, including a final $1.2 billion payment to the US Department of Justice. Payments are expected to be just over $3 billion in 2018, weighted to the first half of the year.
Gearing, the ratio of net debt to equity, was 28 percent, an increase from 27 percent in the fourth quarter of 2017, BP said.
The spill payment in the first quarter was “$500 million more than I expected,” although that probably means the burden will be lower later this year, Redburn analyst Rob West said. “Cash flow was good but messy, with less cash tax paid than expected.”
Though BP has worked through almost all of the 390,000 legal claims stemming from the 2010 explosion, the bill for its remaining claims unexpectedly jumped late last year. The company was forced to take a surprise $1.7 billion charge to net income in the fourth quarter because the cases that did remain were among the largest and most complex.
Adjusted net income for the first quarter was $2.59 billion, the highest since 2014 and beating analysts’ estimates of $2.12 billion.
“We have delivered another strong set of results” with rising output from major new projects, Chief Executive Officer Bob Dudley said in a statement. “We’re determined to keep delivering our operational targets and maintaining capital discipline while growing cash flow and returns.”­