Monday 03 / October / 2022
London: BP reported a 49 per cent decline in third-quarter earnings after crude prices fell and refining margins shrank.
Profit adjusted for one-time items and inventory changes dropped to $933 million from $1.8 billion a year earlier, the London-based company said on Tuesday in a statement. That beat the $719.2 million average estimate of 14 analysts surveyed by Bloomberg.
BP’s earnings have fallen year-on-year for nine consecutive quarters, piling pressure on Chief Executive Officer Bob Dudley to rein in spending and sell assets without jeopardising future growth. Oil’s rally following the Organisation of Petroleum Exporting Countries’ September decision to cut output is fading and BP and its peers will need to continue cutting spending so they can maintain dividend payouts. The company will trim capital expenditure to about $16 billion this year, compared with a previous estimate of less than $17 billion.
"We continue to make good progress in adapting to the challenging price and margin environment,” Chief Financial Officer Brian Gilvary said in the statement. "At the same time we are investing in the projects, businesses and options to deliver growth in the years ahead."
Cash flow
Brent averaged $46.99 a barrel in the quarter, down from $51.30 a year earlier and $47.03 in the prior three months. The decline that began in mid-2014 has forced explorers to delay projects, cancel billions of dollars of investments and eliminate thousands of jobs. Prices have increased about 7 per cent since Opec’s surprise U-turn in Algiers on September 28. BP reiterated its aim of covering capital expenditure and dividends from cash flow at a price of $50 to $55 next year.
BP is renegotiating contracts and reducing the size of projects to lower costs, and plans to maintain 75 per cent of all cost cuts even when prices rise in the future. Organic capital expenditure for 2017 will be in the range of $15 billion to $17 billion.
Exxon Mobil, the world’s biggest oil company by market value, said on October 28 its production sank to a seven-year low. The company warned it may be facing the biggest reserves revision in its history as it extended a run of profit declines. Chevron posted its first profit in a year though production fell short of expectations. While cost cuts helped Total beat estimates, Eni reported wider-than-expected losses and Statoil posted a surprise loss.
Weaker refining
BP’s downstream earnings fell to $1.4 billion in the quarter from $2.3 billion a year earlier. Global refining margins averaged $11.60 a barrel in the period, 42 per cent lower than a year earlier, according to the company’s website.
While BP’s exploration and production business has struggled during the oil slump, the refining and marketing division helped buoy earnings over much of last year. Refineries benefited from the falling cost of crude while fuel demand rose, but that led to over-production and huge stockpiles that now can’t be absorbed.
BP and competitors including Royal Dutch Shell will be hoping Opec members reach a consensus on production cuts when they meet at the end of this month, to push up prices. Though cost cuts have helped large oil companies survive the market rout, many have amassed substantial debts to maintain dividend payments.
At the end of the third quarter, BP’s net borrowings totaled $32.4 billion, up from $25.6 billion a year earlier. Net debt to capital, also called gearing, was at 26 per cent, compared with 20 per cent previously, according to the statement. The company announced a quarterly dividend of 10 cents a share.
