Shares rise as BP smashes Q2 forecasts

Better-than-expected results from BP have provided further evidence that the world's oil giants are finally getting used to the tougher price environment.

In keeping with strong recent performances by Royal Dutch Shell and Total, BP highlighted "considerable strategic momentum" from rising production in its newer upstream projects and from marketing growth in downstream.

Underlying profits on a replacement cost basis, which provide the preferred benchmark for analysts, were $684 million (£516.8 million) in the second quarter. This was much better than the $500 million consensus forecast.

However, BP's decision to exit some exploration assets in Angola contributed to $753 million of write-offs in the quarter, meaning that the profits were still lower than a year earlier and against the $1.5 billion recorded in Q1.

BP's decision to relinquish its 50% interest in a natural gas discovery project in southern Angola is part of an ongoing review of developments that the company thinks won't deliver "maximum value for shareholders".

Divestment proceeds of between $4.5 billion and $5.5 billion are expected in 2017, the vast majority of which will come towards the end of the year.

The disposal strategy comes as BP and the rest of the industry deal with a three-year fall in oil prices, which now appear to have stabilised at around $50 a barrel. Royal Dutch Shell boss Ben van Beurden said last week that his company is braced for the oil price environment to be "lower forever".

BP counterpart Bob Dudley echoed this sentiment, saying that BP was positioned for the "new oil price environment" through a tight focus on costs, efficiency and discipline in capital spending. BP stuck by its pledge today to keep annual capital expenditure in the range of $15-17 billion.

Efforts to boost upstream production through newer and more viable projects appear to be paying off, though, with 6% output growth and an 18% reduction in unit production costs.

BP expects third-quarter production to be broadly flat on the previous quarter, with the continued ramp-up of major projects offset by seasonal turnaround and maintenance activities.

Upstream profits of $710 million were much better than expected and were also stronger than a year ago.

The picture for downstream operations was more mixed, with profits of $1.4 billion slightly lower than a year ago and the previous quarter. This was despite 20% growth in fuels marketing, supported by the rollout of convenience store partnership sites and higher premium volumes.

Over the next five years BP has targeted an increase in downstream pre-tax cash flows of between $3.5 billion and $4.5 billion from 2016 levels.

BP's shares have stuttered in recent weeks after touching 500p at the start of this year. But they ticked 4% higher Tuesday to 463p and UBS analyst Jon Rigby believes that this level is attainable again and has placed a price target of 525p on the blue-chip stock.

Meanwhile, the financial impact of the Gulf of Mexico oil disaster in 2010 continues to hang over the company, with payments relating to the oil spill causing net debt to rise to $39.8 billion, from $30.9 billion a year earlier.

There were $2 billion of payments in the second quarter and $4.3 billion in the first half of 2017, but BP expects the figure to be considerably lower in the second half, with the full-year estimate unchanged at $4.5-5.5 billion.

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