The extent of the bloodbath at the top of Big Oil in an era of lower prices is becoming clear, as BP revealed the sea of red in its accounts. But while it was very much a scarlet sky this morning, investors were actually pleasantly surprised things weren’t a whole lot worse.
The oil giant’s replacement cost profits (the industry’s preferred measure) fell 39% from $3.48bn (£2.28bn) to $2.1bn in the first quarter of 2015. On an underlying basis (excluding one-offs like Deepwater Horizon payouts, more of which later) profits were down 19% to $2.6bn – but analysts surveyed by Bloomberg had expected a mere $1.2bn.
That was largely down to a stonking performance in BP’s downstream business (refining, trading, etc), where profits more than doubled from $1bn to $2.2bn. In contrast, upstream (exploration, production) profits all but disappeared from $4.4bn to just $550m, even though production outside of Russia rose 8.3%.
Meanwhile, the company is cutting costs (it had already said it would cut spending 20% this year) and continuing to rid itself of assets and staff in expensive areas like the North Sea, confirming it was $7.1bn into its plan to divest $10bn of assets in 2014-15.
It also kept its investors sweet by holding its quarterly dividend firm at 10 cents a share - shares were up 1.5% to around 484p at midday.
BP’s shares have actually been outperforming its core commodity for a while now. It said Brent Crude averaged $54 a barrel in the quarter, exactly half the norm a year earlier (it’s been recovering in recent days and is currently around $65). Meanwhile, gas is around 40% lower. But BP’s shares have only slipped 2% in the last 12 months and have actually risen 16% since the start of 2015.
Credit: Yahoo Finance
That plumped-up price makes it increasingly unlikely BP will be gobbled up by the likes of Exxon Mobil, a rumour that has been increasingly floated since Shell said it was buying BG for a monster £47bn earlier this month. It had been severely weakened by the 2010 Deepwater Horizon spill, but that is also still an enormously costly albatross no buyer will be keen on – another few hundred million was added to its bill in the quarter, taking the total liability to a painful $43.8bn. For now, then, that’s an extra burden BP has to keep bearing by itself (cue tiny violin).