Resurgent BP profits gushing again with stripped-back model

Comment Martin Flanagan

BP had a good day at the oilwell yesterday. The oil giant, which has had a torrid time since the Deepwater Horizon tragedy in 2010, cheered investors by posting a surge in third-quarter profits and raising the prospect of a chunky dividend as oil has hit more than $60 a barrel.

BP has paid out more than £63 billion in compensation over the past few years for the fatalities and environmental disaster in the Gulf of Mexico, and the low oil price has not helped as it has sold off a raft of assets to reduce its overall exposure in an unhelpful climate.

But as the oil price has recovered BP has struck a Q3 profit of $1.9bn (£1.4bn), up from $684 million in the previous quarter, and also launched a share buyback programme. Shares in the oil major hit a seven-year high in trading yesterday.

What a different picture from around late last year. At that time, BP boss Bob Dudley raised the price the company needed oil prices to be to $60 to break even, after reporting an annual loss of $542m in its core exploration arm.

Now we’ve seen the price move above $60 and with the output freeze agreed by Opec set to go on into 2018, the overarching picture is much improved.

Even better, BP now says it is able to cover its costs and the dividend payout at an oil price of $49 a barrel, given the raft of costcutting it and its peers have made since the oil price collapsed in 2014.

The group says oil and gas production rose to an average 3.6 million barrels per day after it launched new projects. In short, the company looks more on the front foot than it has been for quite some time.

As Dudley says, after its long night of the soul following Deepwater Horizon, BP is gaining a renewed track record of delivering on its plans, even if they have sometimes seemed to reflect reduced aspirations, and growing its business where it can and more selectively.

That should be good for both free cash flow and distributions to investors. BP is currently searching for a new chairman after it announced that Carl-henric Svanberg is stepping down next year.

The new person will be relieved to be joining an energy major that is no longer fire-fighting, but seems to have a new streamlined delivery strategy firmly in place. Dudley deserves some plaudits.