BP doubles profit in year of transformation
US shale acquisition from BHP helps boost London-listed firm’s earnings to a five-year high
London — BP joined its competitors in posting a strong 2018 performance, with a doubling of profits driven by strong growth in oil and gas output following a large US shale acquisition.
Record utilisation of its oil and gas fields and refining capacity further helped BP seal what was a transformational year as the aftermath of the deadly 2010 Deepwater Horizon disaster eased. But while the London-listed firm’s revenue beat forecasts, debt rose and the pace of its share buyback scheme slowed in the last quarter after it paid the first and largest tranche of the $10.5bn BHP acquisition.
BP shares rose more than 3.3% in early trade in London on Tuesday, hitting their highest since early December.
“We now have a powerful track record of safe and reliable performance, efficient execution and capital discipline. And we’re doing this while growing the business,” BP CEOBob Dudley said in a statement on Tuesday.
Royal Dutch Shell, Exxon Mobil and Chevron all reported stronger-than-forecast earnings last week, driven by higher production in US shale basins where oil majors have invested billions in recent years. The strong gains came despite a sharp drop in crude prices at the end of the year that wiped out most gains made in share prices throughout the year.
Uncertainty over the outlook for oil prices as well as concerns over global economic growth and Sino-American trade tensions are likely to continue to weigh on the sector. CFO Brian Gilvary told Reuters he expected Brent crude prices to hold around current levels of $60 a barrel in 2019, while demand is expected to rise by between 1.3-million and 1.4-million barrels per day, a similar pace to that seen in 2017.
Capital expenditure will be between $15bn and $17bn this year, after reaching $15.1bnin 2018, Gilvary said. BP plans to sell $10bn of assets over the next two years to help pay for the BHP deal, including a suite of fields in the US as it focuses on the most attractive basins, he added.
After settling the vast majority of payments for the 2010 spill in the Gulf of Mexico, totalling nearly $70bn, BP has more recently focused on growing production into the next decade, including the BHP deal, which is its largest in 30 years.
For the year, BP’s profit rose to a five-year high of $12.7bn, double the previous year’s $6.17bn and above analyst expectations of $11.88bn.“Overall, we see this as a strong set of results, with stronger underlying earnings translating into cash,” Biraj Borkhataria, an analyst at RBC Capital Markets, said in a note.
Production rose to 3.7-million barrels of oil equivalent per day in 2018 after BP completed the acquisition of BHP’s onshore US shale portfolio and thanks to the start-up of new fields including the 120,000 barrel per day Clair Ridge project in the North Sea. Excluding its share of production from its 20% stake in Russia’s Rosneft, BP’s production was up 8.2% from 2017.
Gearing, the ratio between debt and BP’s market value, rose to 30.3% at the end of 2018 from 27.4% a year earlier. Net debt was $44.1bnat the end of last year.