BP Profits Surge on Prices, Volume Gain
adds content following BP 2Q analysts call in italics
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BP announced July 31 a 2Q net profit of $1.03bn, eight times more than its $131mn profit in 2Q2017. Underlying profits of $2.82bn were four times more than its $684mn gain in 2Q2017.
CEO Bob Dudley remarked: “We brought two more major projects online, high-graded our portfolio through acquisitions such as BHP’s US onshore assets and invested in a low-carbon future with the creation of [UK electric vehicle charging business] BP Chargemaster.” Net debt reduced at June 30 2018 at $39.3bn was $0.7bn less than a year before.
Upstream production, excluding Rosneft, for 2Q2018 was 2,465mn boe/d, up 1.4% year on year; that comprised 1.217mn b/d liquids (down from 1.352mn b/d) and 7.24bn ft3/d (up strongly from 6.2bn ft3/d) and means that 50.6% of BP’s non-Rosneft 2Q2018 production was gas.
BP’s 19.75% equity share of Rosneft’s production was flat year on year at 1.12mn boe/d in 2Q2018.
Two major upstream projects started up in 2Q18: Shah Deniz 2 (SD2) gas project in Azerbaijan, and the Taas-Yuryakh oil expansion in Russia (BP 20%). Dudley told analysts that BP expects costs on SD2 and Southern Caspian Pipe to come in at “20% below those at sanction” – but did not elaborate, except to repeat that SD2 was “well under budget”. The Atoll gas in Egypt started up 1Q2018. It expects three more projects to come onstream during the remainder of 2018.
Average prices realised for this second quarter were $67.24/b on liquids and $3.65/’000 ft3 for gas (up from $46.27 and $3.19 respectively in 2Q2017). Dudley said that BP is planning its business on the basis of oil prices at $50-$65/b going forward.
On major projects going forward, Dudley said that a final investment decision on the Tortue floating LNG phase 1 project offshore Mauritania and Senegal is expected in 4Q2018; an inter-governmental agreement with both governments has already been signed. Exploration write-downs were $81mn in 2Q2018, down sharply from the $753mn in 2Q2017 when it wrote off and relinquished gas blocks offshore Angola.
Investment in BHP to be funded by $5bn+ divestments
On BP’s agreement last week to buy BHP’s Lower 48 assets for $10.5bn, Dudley said that the acquisitions would add 4.6bn boe of reserves [mostly oil] – “materially high-grading our US position” and would be accumulated within BP’s existing financial framework, so within its global capex remaining within its $15bn-$17bn band.
An extra $5bn-$6bn of BP non-core assets would be divested globally, added Dudley, with the proceeds to be used to fund investment in the BHP US assets. By 2021, he said he expects the new assets to contribute $1bn extra in pre-tax cashflow per year.
CFO Brian Gilvary said that BP had already received offers to resell parts of its BHP package, which was offered for sale in seven parts – but stressed that BP wanted the whole deal, seeing synergies across its component parts.
He added that BP’s divestments in 2018 (none associated with the $5bn-$6bn announced in association with the BHP deal) were expected to total $3bn, which would be weighted towards 4Q.
BP earlier this month also announced an agreement to increase its stake in the Clair oil and gas field in the UK while exiting the Greater Kuparuk Area in Alaska. ConocoPhillips was the counterparty in both deals.
US Gulf of Mexico oil spill payments [following BP’s 2010 Macondo disaster] on a post-tax basis totalled $2.4bn in 1H2018; payments for full year 2018 are expected to just top $3bn post-tax. BP also bought back $200mn of shares in 1H2018. Gilvary said next year's were expected to be nearer $2bn.