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BP strikes cautiously confident tone as latest profit beats forecast

Under most circumstances, when a company announces its latest profits have merely matched those from the same period a year earlier, it is nothing much to write home about.

In the case of BP, today, it is.

For the three months to the end of June, replacement cost profit – the standard oil and gas industry measure of profitability – came in at $2.8bn on an underlying basis, unchanged from the same quarter in 2018.

However, whereas Brent crude was trading at an average of $74.39 per barrel in those months last year, this time around it was trading at an average of $68.86.

BP’s ability to maintain profits at last year’s level, despite lower oil prices, is explained by the fact that its oil and gas production was up 4%, at 3.8 million barrels of oil equivalent per day, on last year.


Much of that is explained by the US shale assets that BP bought from BHP, the mining giant, in July last year for $10.5bn in what was its biggest deal in 19 years.

BP took over production of those assets at the beginning of March this year and, it revealed today, it has already increased the number of rigs operating at the sites it acquired.

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Bob Dudley, BP’s chief executive, said today the company was continuing to “ramp up activity” in those assets.

He added: “The wells we have drilled and performing at, or above, their planned production levels and the cost for new wells are coming down.”

The results have sent BP’s shares up by more than 3%.

They were better than the City had expected and represent the 10th consecutive quarter in which BP has reported results that beat forecasts.

Some of BP’s big rivals, such as Total of France and Eni of Italy, have recently reported results below expectations.

The big question is what comes next.

The company warned today that production in the current quarter will be lower due to “continued seasonal turnaround and maintenance activities, including in the North Sea, Angola and the US Gulf of Mexico, as well as the impact of Hurricane Barry on operations in the US Gulf of Mexico”.

Even less easy to predict is the oil price.

Brian Gilvary, the chief financial officer, noted today that crude prices had fallen since the end of June, reflecting increasing concerns around global economic slowdown and the potential impact on oil demand, along with continued increases in production in the US.

He also said that global oil stocks remained around their five-year average levels, with continued increases in supply being offset by production cuts from the OPEC countries, as well as weaker growth in demand.

Image: The oil and gas industry has generated around £334bn in revenues since the start of the 1970s, but these have been in decline

He added: “We expect prices to remain volatile.

“Recent geopolitical events, particularly in the Strait of Hormuz, and the potential for worsening global economic conditions, are creating concerns around supply and demand fundamentals, driving volatility in prices.”

Dr Gilvary also revealed that BP had not taken any of its tankers through the Strait since Iran attempted to seize one earlier this month.

The company is, instead, using chartered tankers to ship oil out of the region.

He went on: “We will continue to make shipments through there but you won’t see any BP-flagged tankers going through in the short term.”

Notwithstanding the short term price volatility that the company expects, as well as lower production levels, the bigger picture is one of a company striking an increasingly confident tone.

Mr Dudley pointed out that, since early 2016, BP had launched 23 major projects as it targets an extra 900,000 barrels per day of new production by 2021.

He said the company had also taken five final investment decisions so far this year, of which the most eye-catching was in the US Gulf of Mexico, but which also included projects in Azerbaijan, the North Sea and India.

What was also striking about today’s results update, though, was the amount of time Mr Dudley spent talking shareholders and analysts through what BP is doing to support the transition to a low carbon economy.

The company, along with the institutions it supports, has been criticised by artists and actors for its arts sponsorship.

Image: The sun sets behind two under construction offshore oil platform rigs in Port Fourchon, Louisiana

Critics say BP uses such sponsorship to distract from what they say are its destructive activities.

But Mr Dudley insisted today BP was “actively supportive of advancing a faster transition”.

He added: “As well as being in the world’s best interests, we believe it is in the best interests of BP and all its stakeholders.

“It means less uncertainty in planning our business, and greater clarity about how we can help meet society’s needs for more energy with lower greenhouse gas emissions with good returns for our shareholders.”

To that end, Mr Dudley said BP would this year invest more than $500m in new energies, which represented more than the total capital expenditure of the 50 smallest companies in the FTSE-100.

Recognising that some people would say the company needs to be investing more in such activities, Mr Dudley argued BP’s investment was often aimed at encouraging others to invest alongside it, as had been the case with the solar power provider Lightsource BP.

He said that business, in which BP had invested $200m, had now attracted $7bn worth of funding.

Mr Dudley added: “When people say our capital spending on new energies is small, I think you have to consider the leverage we enable, of $200m in this case, to $7bn.”

He also cited BP’s investments in wind energy in the US, its recent joint venture in Brazil with the US agribusiness giant Bunge to produce biofuels from sugar cane and its recent investments in electric vehicle charging technology.

This may not be enough to satisfy the critics.

They will point out that $500m on new energies is a small sum set against total capital expenditure at BP this year of between $15bn and $17bn.

Yet it is significant that supporting the transition to low carbon was one of three sectors – along with US shale and its forecourts – that Mr Dudley chose to showcase today to investors.

It will not be the last time.


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