BP profits soar despite $1.6bn Deepwater Horizon payout

02 May, 2018, 02:09 | Author: Sally Reid
  • BP's Efforts to Get Back Among Big Oil's Elite Start to Pay Off

"Overall it was a very healthy set of results", said Martijn Rats, analyst at Morgan Stanley, which has a "neutral" recommendation on BP stock.

Like the handful of big oil firms that have already reported in recent days, London-based BP benefited handsomely from recently lofty oil prices.

The oil giant said underlying replacement cost profits jumped by 71% to $2.6bn (£1.9bn) for the first three months of 2018.

That compared with a profit of $1.5 billion a year earlier and $2.1 billion in the fourth quarter of 2017.

Operating cash flow excluding payments made following the oil spill in the Gulf of Mexico stood at $5.4bn, including a $1.8bn negative impact from an increase in working capitals. The disaster killed 11 and sent oil spewing into the Gulf, resulting in the worst offshore oil spill in USA history.

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"The spill payment in the first quarter was "$500 million more than I expected", although that probably means the burden will be lower later this year, said Redburn analyst Rob West, as quoted by Bloomberg.

The company has also demonstrated that despite the general wariness in the industry, the supermajors are investing in new production: in the last quarter, BP made a final investment decision on four new projects-two in the United Kingdom portion of the North Sea, one in India, and one in Oman. Part of that effort has been a plan to return its oil-and-gas production to 4 million barrels a day, while boosting profits and cash flow.

BP said its upstream operations - which cover exploration and production - enjoyed the best quarter since the third quarter of 2014, with underlying profits more than doubling to 3.2 billion U.S. dollars (£2.3 billion). The company paid out US$1.6 billion on a pretax basis related to Deepwater Horizon, including a final US$1.2 billion payment to the US Department of Justice. It was also about a billion dollars lower than analysts' expectations. The last time it reported profits of that size was in the third quarter of 2014 when oil prices were hovering near $100 a barrel.

"Underlying profit was up 23% on the previous quarter and was our best quarterly result in three years". BP is expected to pay $3 billion in 2018.

Chief Financial Officer Brian Gilvary said the London-listed company might consider raising the dividend later this year if oil prices remain near current levels and debt declines.

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