Earnings Are Not BP’s Biggest Story

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BP PLC (NYSE: BP) reported second-quarter 2018 results before markets opened Tuesday. The oil and gas supermajor posted adjusted diluted earnings per American depositary share (ADS) of $0.85 on revenues of $75.44 billion. In the same period a year ago, the company reported earnings per ADS of $0.74 on revenues of $56.51 billion. Analysts estimated earnings per ADS of $0.83 and revenues of $79.68 billion. One ADS is equal to six ordinary shares.

The big news from BP came last Friday when the company announced a $10.5 billion purchase of shale assets in Texas and Louisiana from BHP Billiton. Analysts widely view that as the end (or nearly so) of the company’s massive payments for the 2010 Gulf of Mexico disaster.

BP’s adjusted replacement cost profit (essentially the company’s adjusted net income/loss) in the first quarter totaled $2.82 billion, compared with $684 million in the year-ago quarter. Unadjusted, BP posted a replacement cost profit of $1.79 billion, $0.54 per ADS, compared with a profit of $553 million and a net profit per ADS of $0.17 in the second quarter of 2017.

The company’s upstream division posted another strong quarter. Unadjusted replacement cost profit totaled $3.51 billion, compared with $710 million in the year-ago quarter. U.S. profit totaled $742 million, compared to $179 million in the second quarter of last year, and non-U.S. profit rose from $531 billion to $2.77 billion.

CEO Bob Dudley said:

We continue to make steady progress against our strategy and plans, delivering another quarter of strong operational and financial performance. We brought two more major projects online, high-graded our portfolio through acquisitions such as BHP’s US onshore assets and invested in a low-carbon future with the creation of BP Chargemaster. Given this momentum and the strength of our financial frame, we are increasing our dividend for the first time in almost four years. This reflects not just our commitment to growing distributions to shareholders but our confidence in the future.

BP boosted its dividend by 10.25 cents per share ($0.615 per ADS), reduced its net debt by $700 million to $39.3 billion and bought back some 29 million shares during the first six months of the year at a cost of $200 million.

Daily average hydrocarbons production totaled 2.47 million barrels of oil equivalent, up by 34,000 barrels a day year over year. BP expects third-quarter production to be roughly equal to second-quarter production.

BP’s price realizations for liquids rose from $46.27 a barrel in the second quarter of 2017 to $67.24. Natural gas averaged $3.19 per thousand cubic feet in the year-ago quarter, compared to $3.65 in the second quarter of this year.

Downstream (refining) pretax profits dipped by about 46 %year over year to $840 million. On an adjusted basis, refining profits rose from $1.41 billion a year ago to $1.46 billion. BP’s refining marker margin was $14.90 a barrel, compared with $13.80 in the year-ago quarter. The outlook for the third quarter calls for lower industry refining margins. BP also expects a significantly higher level of turnaround activity in the second half of the year, particularly at its Whiting, Indiana, refinery.

To date, BP has paid out $66.52 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 Gulf of Mexico in April 2010. In the second quarter, the company paid out a total of $319 million including $126 million to pay claims, administrative fees and financing costs and $193 million related to business economic loss.

BP’s organic capital spending totaled $3.47 billion in the second quarter of an estimated 2018 capex of $15 billion to $16 billion. For the year to date, capex totals $7.01 billion, down from $7.89 billion in the first half of last year.

BP’s ADSs closed down about 0.2% on Monday at $44.41, in a 52-week range of $33.90 to $47.83. They traded up about 1.5% in Tuesday’s premarket session at $45.05. The 12-month consensus price target was $49.05 before Tuesday’s report.