Page 4 - Euroil Week 43 2019

EurOil COMMENTARY EurOil
BP, Total profits slump
on price pressure
BP’s earnings were particularly weak because of Gulf of Mexico outages
EUROPE
WHAT:
BP and Total were both stung by lower oil and gas prices.
WHY:
While BP also suffered from hurricane-related output disruptions, Total benefited from production growth.
WHAT NEXT:
BP is continuing to divest while Total has long-term plans for output growth.
UK energy major BP and its French rival Total have both reported weakened profits for the third quarter as a result of bearish market con- ditions and other factors.
BP
BP’s underlying cost profits tumbled 41% y/y to $2.25bn in the three months and booked a loss attributable to shareholders of $749mn, versus a $3.35bn profit a year before. The impact of low oil and gas prices was compounded by high lev- els of maintenance and the temporary closure of its Gulf of Mexico facilities because of Hurricane Barry.
The company suffered a replacement-cost loss of $1.05bn from its upstream activities, swinging from a $3.47bn profit in the same period of last year, with output excluding what it nets from its 19.5% stake in Russia’s Rosneft rising 4.4% y/y but declining 2.2% quarter on quarter. Shutdowns in the Gulf of Mexico cost it 100,000 barrels per day of oil production.
Downstream replacement-cost profit also slumped from $2.25bn to $2.01bn, although operationally the segment performed well, BP said, noting it had achieved record crus runs at its Whiting and Cherry Point refineries in the US.
BP was also stung by $2.6bn divestment-re- lated charges, having sold off $7.6bn in assets this year including $5.6bn in midstream and upstream operations in Alaska to Hou- ston-based Hilcorp. The company has decided to accelerate its mainly US-focused divestment drive, with sales set to reach $10bn by year-end. It had previously set a goal of divesting this much by the end of 2020.
CEO Bob Dudley, due to step down next year, pointed to the delivery of strong cash flow as cause of optimism.
“Our focus remains firmly on maintain- ing financial discipline and delivering safe and reliable operations throughout BP,” he said in a statement. “We’re also continuing to advance our strategy, making strong progress with our divest- ment plans and building exciting new opportu- nities in fast-growing downstream markets in Asia.”
The company secured $6.056bn in net cash from operations during the third quarter – only a slight decrease from $6.092bn a year earlier.
“BP’s third quarter results demonstrate the resilience of our financial performance, even at
lower prices,” Chief Financial Officer Brian Gil- vary added. “Net debt stayed flat in the quarter, though gearing rose slightly following a reduc- tion in equity as a result of divestment-related impairment charges.”
Net debt will continue to “trend down” over time, he said. BP’s tax burden was also smaller than anticipated in the period, because of strong earnings from Rosneft and a lower-than-ex- pected impact from the upstream profit mix, he added.
Total
Total fared better than BP, largely because it par- tially offset the impact of weaker prices with out- put gains. Net profits were down 24% on the year at $3.02bn, while debt-adjusted cash flow was stable at $7.4bn, marking a decrease of only 2%.
“The group continues to achieve solid results despite a third-quarter environment ... marked by an 18% decrease in the Brent price to $62 per barrel and gas prices that fell by about 55% in Europe and Asia,” CEO Patrick Pouyanne said.
Despite the “volatile” environment, Total’s oil and gas production ramped up to a record high of 3.04mn bpd in the quarter, up more than 8% y/y. LNG production surged 55%, thanks to gains at Yamal LNG in Russia and Ichthys LNG in Australia and other projects.
Production growth was not enough to coun- ter the price pressure, with Total’s adjusted E&P net operating income slumping 29% to $1.73bn. It also benefitted from solid downstream perfor- mance, however, with its refining and chemical business reporting a 1% uptick in earnings to $952mn and a 14% growth in cash flow to $2bn.
“Despite the volatile European refining mar- gins, the downstream is well positioned to gen- erate cash flow closer to $7bn in 2019,” Total said.
Looking ahead, Total warned of “uncertainty.” “The environment remains volatile, with uncertainty about hydrocarbon demand growth related to the outlook for global economic growth and in a context of geopolitical instabil-
ity,” it said.
The company stressed that it was able to break
even at oil prices below $25 per barrel, however, and continued to “high-grade its portfolio.”
Total is targeting a 9% overall growth in pro- duction this year and expects output to rise on average by 5% each year between 2018 and 2021 before flattening in 2022-2023. Further increases should come after that. ™
P4
w w w . N E W S B A S E . c o m
Week 43 31•October•2019