BP breaks even in ‘tough en­vi­ron­ment’ as Gulf of Mexico charges slashed

Muscat Daily - - BUSINESS -

Lon­don, UK - BP Plc moved to calm in­vestor con­cerns after debt rose to a record, say­ing lower oil spill pay­ments for the rest of the year and funds from as­set sales will ease the bur­den.

“This year debt is go­ing up ex­actly in line with pay­ments go­ing out for Ma­condo,” chief fi­nan­cial of­fi­cer Brian Gil­vary said on Tues­day by phone. “And it will come back down com­men­su­rately in the sec­ond half of the year when dis­posal pro­ceeds come in.”

BP re­turned to profit in the sec­ond quar­ter on slashed charges linked to the Gulf of Mexico oil spill dis­as­ter and on firmer crude prices, the en­ergy gi­ant said on Tues­day. Net profit stood at US$144mn in the three months to June 30 com­pared with a loss after tax of US$1.4bn in the sec­ond quar­ter of 2016, the Bri­tish group said in a re­sults state­ment.

Net bor­row­ings to­talled US$39.8bn at the end of June, up al­most US$9bn in a year, be­cause of con­tin­u­ing pay­ments for the 2010 Gulf of Mexico dis­as­ter. While BP man­aged to cover div­i­dend and spend­ing com­mit­ments with cash flow in the first half, it’ll need sta­ble oil prices to do so over the re­main­der of the year.

“The thing which is al­le­vi­at­ing any con­cerns is the fact that we’re now cash break-even at be­low US$50 a bar­rel,” Gil­vary said, fore­cast­ing prices of US$45 to US$55 in 2018. “In the first half of the year we were cash break-even at US$47 a bar­rel.”

Sev­eral of Europe’s big­gest oil com­pa­nies, all of which made sweep­ing cost cuts amid oil’s col­lapse, have sig­naled a re­turn to growth with earn­ings above analyst ex­pec­ta­tions. Royal Dutch Shell Plc gen­er­ated al­most as much cash from op­er­a­tions in the sec­ond quar­ter as it did when crude was above US$100. Still, many are re­ly­ing on dis­pos­als and scrip div­i­dends - pay­outs in stock - to free up funds. At BP, the Ma­condo spill forced chief ex­ec­u­tive of­fi­cer Bob Dud­ley to sell bil­lions of dol­lars of as­sets to fund fines and com­pen­sa­tion.

“It’s a tough en­vi­ron­ment and could re­main that way for some time,” Dud­ley said on a con­fer­ence call with an­a­lysts.

Cash growth

Gear­ing, or net debt to cap­i­tal, climbed to 28.8 per cent in the sec­ond quar­ter from 24.7 per cent a year ear­lier, near­ing BP’s 30 per cent ceil­ing. Nev­er­the­less, the com­pany gen­er­ated US$4.9bn in cash from op­er­a­tions, not far off the lev­els of 2012 and 2013, when oil prices were much higher.

‘Im­por­tant for us is the cash­flow num­ber’, an­a­lysts at Bar­clays Plc said in a note. ‘With an­other four ma­jor projects due on-stream in the sec­ond half, we ex­pect this cash-flow mo­men­tum to con­tinue to build’.

BP plans to start op­er­at­ing its Perse­phone project in Aus­tralia, Ju­niper in Trinidad & Tobago, Khaz­zan in Oman and Zohr in Egypt by the end of 2017 - all nat­u­ral-gas de­vel­op­ments.

Of the US$4.5bn to US$5.5bn BP ex­pects to pay for the Gulf of Mexico ac­ci­dent this year, it paid US$4.2bn in the first half, and says as­set sales will cover the cost. As Ma­condo pay­ments fall to US$2bn next year and US$1bn in 2019, the mar­ket will ‘start to re­act’ to BP’s new projects, Gil­vary said.

BP Plc’s net profit stood at US$144mn in the three months to June 30

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