BP profits hammered in second quarter

BP, the first oil major to report second-quarter results, said earnings fell 45 per cent as lower crude prices continued to erode income.

Profit adjusted for one-time items and inventory changes dropped to US$720 million from $1.3 billion a year earlier, the London-based company said Tuesday. That compares with the $819m average estimate of 13 analysts surveyed by Bloomberg. Downstream earnings, which include refining, totalled $1.51bn, down 19 per cent.

Brent crude’s 25 per cent increase in the quarter provided some prospect of relief after a two-year slump that forced explorers to delay projects and eliminate thousands of jobs. The BP chief executive Bob Dudley, who has cut billions of dollars of spending at Europe’s third-biggest oil company, still faces a difficult road ahead as crude’s rally fades amid slowing demand growth and returning production from Canada to Nigeria.

Brent averaged $47.03 a barrel in the quarter compared with $63.50 a barrel a year earlier and $35.21 a barrel in the first quarter of this year.

BP has said it has the option to reduce investment to as little as $15bn in 2017 from $17bn this year if oil prices remain low. Mr Dudley is slashing expenditure so he can continue to pay dividends, which he says is the company’s top financial priority.

The cost cuts mean BP will be able to balance cash flow with shareholder payouts and capital spending at an oil price of $50 to $55 a barrel next year, the company said in April. That is a reduction from a previous estimate of $60.

BP’s shares have risen 24 per cent in London this year following two years of declines. That compares with a 36 per cent gain at Royal Dutch Shell and a 2.4 per cent increase for Total.

While oil’s lows led to losses at BP’s exploration and production business in the previous two quarters, they have boosted earnings for its refineries as they benefit from cheaper crude. Global refining margins averaged $13.80 a barrel in the quarter through June compared with $10.50 in the preceding three months, according to the company’s website.

The margin has dropped to $10.70 a barrel this month. At the same time, the rebound in crude prices is petering out. Production shut down by wildfires in Canada and by militant attacks in Nigeria is returning and shale drillers in the United States are bringing back some rigs. While there is still consensus that the worst of the oil glut is over, the International Energy Agency cautioned this month that “the road ahead is far from smooth”.

BP’s quarterly results are likely to be an indication of how the other oil majors will perform. Shell and Total are scheduled to publish earnings on Thursday, and ExxonMobil and Chevron the following day.


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