Page 4 - Euroil Week 05 2020

EurOil COMMENTARY EurOil
BP braves headwinds
New CEO Bernard Looney takes the company’s helm at a dif cult time
UK
WHAT:
BP saw a sharp decline in Q4 pro ts, alongside other majors.
WHY:
The company was hit by upstream charges and lower oil and gas prices.
WHAT NEXT:
BP’s new CEO needs
to focus on making the company more resilient to bearish market conditions, while also placating environmental criticism.
BP CEO Bob Dudley stepped down on Febru- ary 5 a er more than a decade at the company’s helm. His replacement, former upstream head Bernard Looney, faces a daunting task. On one hand, he must work to make BP’s business model more resilient to low prices, following two quar- ters of sharp declines in pro ts. On the other, he must seek to convince environmentalists and governments that the oil major is taking climate change seriously.
Q4 results
BP’s underlying replacement cost (RC) pro ts – its de nition of net income – slumped 26% year on year to $2.57bn in the fourth quarter, accord- ing to results published on February 4. Full-year income was also down 21.3% at $9.99bn.
Upstream RC pro t prior to interest and tax totalled $614mn in the fourth quarter, down from $4.16bn a year earlier, with BP blaming the steep fall on $2.723bn of charges, mostly linked to disposal transactions.
Excluding these and other non-operating items, BP’s upstream delivered $2.68b in pre- tax underlying RC profit in the three-month period, from $3.89bn a year earlier. Like its rivals ExxonMobil, Chevron and Royal Dutch Shell, which have also reported significantly lower fourth-quarter earnings, BP was stung by
lower oil and gas prices. ese wiped away the gain from a 2.7% y/y growth in its production to 2.698mn barrels of oil equivalent per day (boepd).
BP nevertheless struck a positive tone despite the slimmer pro ts, announcing it would raise its dividends by 2.4% to $0.105 per share. e company’s progress in divesting non-core assets and expanding free cash ow justi ed the move, CFO Brian Gilvary said in a statement.
BP has shed $9.4bn of assets since the start of 2019, making its $10bn end-2020 target for divestments well within reach. It intends to announce deals for the disposal of a further $5bn of assets by mid-2021.
Operating cash ow came to $7.6bn in the fourth quarter and $28.2bn in the full year, up from $6.8bn and $22.9bn in the corresponding periods of 2018. But net debt grew over last year, from $43.5bn to $45.4bn, causing gearing to increase from 30.0% to 31.1%.
Analysts were generally impressed with the major’s performance, with Redburn’s Stuart Joyner describing the result in a note as “solid deliveryinatoughenvironment.”
Panmure Gordon analyst Colin Smith said the bump in dividends was a surprise move, however, “particularly as it comes when gearing is above the top end of the
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w w w . N E W S B A S E . c o m Week 05 06•February•2020