BP profit on target as cash flow grows

Bloomberg

BP Plc boosted cash flow and hit the target on profit estimates in the first quarter as rising oil and gas production and strong trading results offset the effect of lower prices.
The company’s performance brightens a mixed picture for Big Oil earnings. While the industry has moved beyond the worst downturn in a generation it’s still enduring volatile markets, with a sharp slump in crude prices late last year followed by a steep rebound in the first few months of 2019.
French giant Total SA was able to keep increasing cash flow thanks to rising production from new projects and Chevron Corp. beat expectations by cutting costs, but Exxon Mobil Corp. posted a first quarter “shocker” as its refineries lost money.
“BP’s performance this quarter demonstrates the strength of our strategy,” Chief Executive Officer Bob Dudley said in the earnings statement. “With solid upstream and downstream delivery and strong trading results, we produced resilient earnings and cash flow through a volatile period that began with weak market conditions.”
London-based BP said adjusted net income was $2.36 billion in the first quarter, matching the average analyst estimate. Shares opened slightly higher, adding 0.3 percent to 554 pence.
The company took operational control of BHP Group Ltd. oil assets scattered across the US during the first quarter, following a $10.5 billion acquisition. Cash flow from operations, a key measure of whether that deal is paying off, rose by $600 million from a year earlier to $5.9 billion, including movements in working capital and excluding payments for the Gulf of Mexico oil spill. Total oil and gas output increased 2.4 percent to 3.822 million barrels of oil equivalent a day.
Gas projects in Trinidad and Tobago and Egypt started up, and BP has a stake in the Constellation oil project in the Gulf of Mexico operated by Anadarko Petroleum Corp., which began operating in February. By 2021, the company expects new projects to lift output by 900,000 barrels a day, potentially closing the gap with its larger rivals.
BP managed to avoid the refining trap that snagged Exxon. Downstream earnings were $1.73 billion for the quarter, down slightly from $1.83 billion a year earlier. Despite lower refining margins, results were buoyed by a strong performance from supply and trading — a giant oil and gas trading house that sits inside the oil major. Exxon doesn’t have a comparable business.
“We remain constructive on BP for its medium-term growth profile and improving cash flow,” RBC Capital Markets analyst Biraj Borkhataria said in a note. “However, the shares have performed well versus the sector in recent months, and we see less valuation upside now.”
In recent months, BP has closed the gap with Total, surpassing the market capitalisation of its French rival for the first time in more than a year.
BP is paying for the BHP assets in cash installments, and still has liabilities to cover associated with the 2010 Deepwater Horizon catastrophe. Those combined outflows pushed the company’s gearing — the ratio of net debt to total debt plus equity — to 30.4 percent, the highest level in at least a decade.
The company plans to reduce debt by selling $10 billion of assets over two years. In the first quarter, its divestments totalled $600 million. Chief Financial Officer Brian Gilvary reiterated that gearing would return to the 20 to 30 percent target range next year.