28th Oct 2014 11:57
LONDON (Alliance News) - BP PLC Tuesday reported a drop in third-quarter earnings, as it was hit by the recent fall in oil prices and as it booked a much smaller profit from its investment in Russia's Rosneft as it felt the effect of US and EU sanctions.
The oil major reported a net profit of USD1.29 billion for the three months to end-September, down from USD3.50 billion a year earlier, even though revenue rose to USD98.20 billion, from USD94.77 billion. It booked underlying net income from its 19.75% stake in Rosneft of USD110 million, down from USD808 million a year earlier.
It said Rosneft had been hit hard by the depreciation of the rouble against the US dollar - which followed the crisis in Ukraine and the resulting imposition of sanctions against Russian businesses and individuals, including Rosneft - as well as lower Urals oil prices and associated duty tax lag effects.
BP's underlying replacement cost profit, its preferred measure of profit as it excludes non-operating items and fair value accounting effects, fell to USD3.0 billion in the third quarter, from USD3.7 billion a year earlier, as lower oil prices more than offset higher production and gas prices.
Its upstream operations, which conduct oil and gas production and exploration, reported underlying pretax replacement cost profit of USD3.9 billion, down from USD4.4 billion a year. Its downstream operations, which include refining, contracting and petroleum sales, reported underlying pre-tax replacement cost profit of USD1.5 billion, more than double the USD700 million of a year earlier, as the refining environment improved and it made more money from supply and trading activities.
The company reported average production of 3.1 million barrels of oil equivalent per day during the quarter. Excluding production from Russia, underlying gas and oil production grew by 4.1% compared with a year earlier. Reported production excluding Russia was 2.1 million barrels of oil equivalent per day, 2.7% lower than the third quarter of 2013 due to the expiry of an Abu Dhabi concession in January, said BP.
Jefferies analyst Whittock said the upstream profit was still more than expected, and the downstream result was strong driven by a lower level of turnarounds, the ramp-up of Whiting operations, and refining margins a touch better.
BP's operating cash flow for the quarter totalled USD9.4 billion, compared with USD6.3 billion a year earlier. For the first nine months of 2014, total operating cash flow reached USD25.2 billion.
"BP's operational momentum continues to deliver results," said Chief Executive Bob Dudley. "Growing underlying production of oil and gas and a good downstream performance generated strong cash flow in the third quarter, despite lower oil prices. This keeps us well on track to hit our targets for 2014."
As a result of hitting the cash flow targets, BP announced a quarterly dividend of 10.00 cents per ordinary share, a 5.3% year-on-year increase.
BP has been shrinking its business in the years since the Deepwater Horizon oil spill in the gulf of Mexico, in an effort to improve profitability, get better management control of the business, and improve shareholder returns.
It said it has now agreed USD4 billion worth of divestments, and has targeted a total of USD10 billion by the end of 2015. It has used some of the money for share buybacks, which have reached USD10 billion since March 2013.
BP also revised down its organic capital expenditure target for the full year to USD23 billion, compared to its original guidance of between USD24 billion and USD25 billion. BP's net debt was equivalent to a gearing level of 15%, within the company's target of between 10% to 20%, it said.
"We are maintaining our strong financial framework, with both a conservative level of gearing and a strictly disciplined approach to investment," said Chief Financial Officer Brian Gilvary. "This provides resilience through periods of oil market volatility."
BP left its provision for the Gulf of Mexico oil spill at USD43 billion, even though it was last month told it couldn't recoup millions of dollars of overpayments made to some claimants under the 2010 Gulf of Mexico oil spill settlement, and a US court separately ruled that it had acted with gross negligence in the lead-up to the 2010 spill, potentially leading to an even bigger fine for the company. BP is appealing the latter ruling.
Analysts from Liberium and Jefferies have predicted BP's production will decrease in the fourth quarter due to lower seasonal demand and lower oil prices.
"Overall, the third quarter results appear better than expected at first sight, but current full year 2014 consensus adjusted net income forecast implies a too ambitious fourth quarter performance and is likely to come down by 5% to reflect lower oil prices in fourth quarter," said Liberum's Whittock.
"Lower seasonal demand is expected to negatively impact fuels and (petrochemical) margins in the fourth quarter of 2014," added Jefferies analyst Jason Gammel.
By Joshua Warner; [email protected]; @JoshAlliance
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