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