Supply & Trade Supports BP in Q1
UK major BP reported April 30 a replacement cost profit for Q1 of $2.4bn, down from $2.6bn in Q1 2018 a year earlier. The result reflected the weaker price and margin environment at the start of the quarter, partly offset by strong supply and trading results.
CFO Brian Gilvary told analysts that "strong" in this context meant anything that was more than $100mn above what BP would have expected. Much of the trading and supply profit came from North American gas, where BP had trading positions around cold weather; and from European LNG, he said. "We had some arbitrage across the Atlantic," he said. He told another analyst that there was no read-through from the very low European and Asian spot gas prices and BP's profitability: the money came from the company's trading around short and long positions during a volatile period. But he expects further price weakness as more capacity comes on stream this year and early next.
The drop in profit compares with the larger percentage drops that its peers have so far reported, caused by weaker oil and gas prices. Plant availability upstream was 96.2% which was very strong, so it was operationally a better quarter; while downstream, excluding oil trade but not gas, was nearer average, CFO Brian Gilvary told analysts. But the work on Thunderhorse in the US meant it was going to be a "difficult quarter."
Net debt at March 31 was $45.1bn, compared with $39.3bn a year ago and gearing was 30.4%, compared with 30.0% at the end of 2018 and 27.8% a year ago. This will drop over the course of the year as production ramps up. It is well on track to meet its 2021 target of 900,000 barrels/day of new equity production, with 500,000 already achieved.
"A lot of the portfolio has been derisked," he said. BP has brought three of them on stream in Q1 and has reached 500,000 b/d of the total with the rest of the assets beyond the final investment decision stage. New gas output includes the second stage of Egypt's West Nile Delta development, in the Giza and Fayoum fields (BP operator 82.75% and DEA Deutsche Erdoel 17.25%); and the Angelin project in Trinidad.
BP has now had the BHP Permian/Eagle Ford US assets for two months, and has eight rigs in the new acreage. In the light of that short experience, its previous forecasts on the synergies with BHP were conservative, he said; but there will be better information at the end of Q2, when it has had five months' operation.
Oil and gas production for the quarter averaged 3.8mn barrels of oil equivalent (boe)/day and upstream production, which excludes Rosneft, was 2% higher than a year earlier. Gilvary said there was nothing yet in US sanctions law that would force it to take action on its investment in Russia – it has a stake in state-controlled Rosneft – and that it would not discuss those plans, if they became necessary, publicly.
CEO Bob Dudley said: "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 and included significant turnarounds. Moving through the year, we will keep our focus on disciplined growth, with efficient project execution and safe and reliable operations."