BP likely made at least $1B in winter storm
BP likely made more than $1 billion from its energy trading business when natural gas prices skyrocketed during the February winter storm.
The British oil major, which has one of the largest trading hubs in North America, on Tuesday said the business had an “exceptional” first quarter in which the company posted a $2.6 billion profit on $6.1 billion of revenue. Analysts had expected BP to report a first-quarter profit of $1.4 billion.
BP said it doesn’t disclose trading numbers, but Citigroup analyst Alistair Syme said he estimates the company made a large profit during the storm.
“Gains from trading in gas and power are not quantified, but the move in (Earnings Before Interest, Taxes, Depreciation and Amortization) suggest these easily topped $1 billion,” Syme said in a research note to clients. “Although not mentioned by name, we think positioning around the February storm in Texas, Storm Uri, has been the biggest driver of these gains.”
An accounting of the energy industry’s winners and losers has emerged in the weeks since the storm and power grid collapse killed nearly 200 Texans and caused billions of dollars in damage.
Vistra, the largest power generator in Texas, on Monday said it took a $1.6 billion financial hit as a result of the storm and crisis. Houston pipeline operator Kinder Morgan last week said it
earned $1.6 billion after it was able to keep natural gas flowing through its pipelines, in large part because it had invested in safeguards to protect equipment from brutally cold temperatures.
Natural gas prices skyrocketed as the winter storm plunged Texas into frigid darkness, causing gas production to fall by nearly half during the storm. Operators of gasfired power plants said inadequate natural gas deliveries brought some of their operations to a halt, resulting in a cycle in which power outages took out more natural gas production that led to more blackouts.
Vistra said it was forced to spend $1.1 billion on natural gas in the spot market at a price of $700 per million British thermal units to keep its natural gas-fired power plants operating during the storm. The company typically contracts for gas at about $3 per million British thermal units.
BP said it generated surplus revenue of $1.7 billion during the first quarter, helping it to meet debt reduction targets a year ahead of schedule.
While the company’s trading business benefited from the high prices, CEO Bernard Looney said thousands of BP employees in Texas endured days of without power and water, as well as damage to their homes. The company paid to house some of its 4,000 Houston-area employees in hotels.
After taking care of its employees, Looney said BP focused on how it could keep electricity and natural gas flowing in Texas. Employees worked 24 hours a day, sometimes driving around Houston in search of available Wi-Fi networks to keep operations running, and helping utility companies secure power and gas.
“I think it is important that people understand that, first and foremost, Texas is not just a market for us, it is our home in America and we have thousands of employees, many of whom went without water or power for many, many days,” Looney said. “The whole focus was on maintaining as much supply to our customers as we could, operating within the market and, obviously, doing everything with the utmost of integrity.”
After its strong earnings during the first quarter, BP said it plans to buy back $500 million worth of shares from investors during the second quarter. The company warned investors, however, that during the second quarter it will pay Gulf Coast states and the U.S. government the annual $1.2 billion pre-tax payment related to the 2010 Deepwater Horizon accident, which caused the worst oil spill in U.S. history.