BP Earnings Cut in Half, Hurt by Lower Prices

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BP PLC (NYSE: BP) reported third-quarter 2016 results before markets opened Tuesday. The oil and gas supermajor posted adjusted diluted earnings per American depositary share (ADS) of $0.30 on revenues of $48.04 billion. In the same period a year ago, the company reported earnings per ADS of $0.60 on revenues of $57.3 billion. Analysts estimated earnings per ADS of $0.25 on revenues of $50.51 billion. One ADS is equal to six ordinary shares.

BP’s adjusted replacement cost profit (essentially the company’s adjusted net income/loss) in the third quarter totaled $933 million, compared with $1.82 billion in the year-ago quarter. Unadjusted, the replacement cost profit totaled $1.66 billion, or $0.53 per ADS, compared with a net profit of $1.23 billion and a net profit per ADS of $0.40 in the third quarter of 2015.

Adjustments to income included a gain of $949 million on non-operating items including a reversal of asset impairments in the Gulf of Mexico and net unfavorable fair value accounting effects totaling $221 million.

The company took a restructuring charge of $154 million in the third quarter and reported a total of $568 million for restructuring in the first nine months of the year. BP said it expects restructuring to continue throughout 2017.

To date BP has paid out $61.8 billion in pretax charges related to the disaster that claimed the lives of 11 workers and dumped millions of barrels of crude oil into the sea. In the third quarter the company paid out $189 million and for the year to date has paid out $6.34 billion. Daily average hydrocarbons production totaled 2.11 million barrels of oil equivalent, essentially flat sequentially and down 132,000 barrels from the year-ago quarter.

BP’s price realizations for liquids slipped from $44.99 a barrel in the second quarter to $41.23. In the year-ago quarter the price realization was $44.01 a barrel. Natural gas averaged $2.77 per thousand cubic feet in the third quarter, up from $2.66 in the second quarter and $3.49 in the second quarter of 2015.

Downstream (refining) pretax profits fell from $2.3 billion a year ago to $1.43 billion. In its outlook statement, BP said it expects turnaround activity to remain high in the fourth quarter and that “industry refining margins will continue to be under significant pressure.”

CFO Brian Gilvary said:

We continue to make good progress in adapting to the challenging price and margin environment. We remain on track to rebalance organic cash flows next year at $50 to $55 a barrel, underpinned by continued strong operating reliability and momentum in resetting costs and capital spending. At the same time we are investing in the projects, businesses and options to deliver growth in the years ahead.

The company also announced its regular quarterly dividend of $0.60 per ADS, a dividend yield of 6.73% at Monday night’s closing price.

BP’s ADSs closed down 0.4% on Monday, at $35.55 in a 52-week range of $27.01 to $37.53. They traded down another 2% in Tuesday’s premarket session at $34.85. The 12-month consensus price target was $37.09 before Tuesday’s report.

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