BP (BP.)


BP boosted by expectation-beating results

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BP (BP.) has announced better-than-expected financial results for the fourth quarter and full year of 2012, sending its shares up 1.4%.

Full-year profits came in at $17.6 billion (£11.2 billion), compared to $21.7 billion in 2011, after the oil giant set aside money to cover liabilities for the Deepwater Horizon disaster. For the fourth quarter, profits of $4 billion were made, compared to $5 billion in the corresponding period in 2011.

The results were announced just days after a US court approved a record $4 billion criminal fine against BP over the fatal Gulf of Mexico spill.

Clean net income of $4 billion came in well ahead of consensus expectations of $3.3 billion, but was still hit as divestments - particularly the sale of its Russian joint venture TNK-BP - hit earnings and production.

By division, refining and marketing was ahead of consensus at $1.4 billion versus $1.2 billion, but exploration and production looked weaker at $4.4 billion versus $4.7 billion.

Operationally, BP expects four new major upstream projects to begin production by the end of 2013: Angola liquefied natural gas, North Rankin 2 in Australia, Na Kika 3 in the Gulf of Mexico and the Chirag oil project in Azerbaijan. A further six major projects are expected to come onstream through 2014. In addition, a major upgrade of the Whiting refinery in Indiana is expected to come online in the second half of 2013.

"BP's operating performance is very much bumping along the bottom whilst we await the fruits of the [capital expenditure] hike announced [in the third quarter] and which won't impact until 2014 at the earliest," commented Stuart Joyner, analyst at Investec.

Organic capital expenditure is still expected to be between $24 billion and $25 billion in 2013, up from $23 billion in 2012. As BP increases reinvestment, gross organic capital expenditure is expected to be managed between $24 billion and $27 billion from 2014 to the end of the decade, together with between $2 billion and $3 billion of divestments.

There was no dividend increase on the nine cent quarterly payment unveiled at the third-quarter results, despite BP committing to offset dilution from the TNK sale through dividend increases. BP in October agreed to sell its 50% stake in TNK-BP to the Russian state-owned energy company Rosneft in return for cash and shares.

Bob Dudley, chief executive, said: "We have moved past many milestones in 2012, repositioning BP through divestments and bringing on new projects. This lays a solid foundation for growth into the long term."

Looking ahead, he said BP remained on track to achieve its target of a 50% boost in operating cash flow by 2014.

Interactive Investor view

BP has been engaged in one of the largest asset-sale programmes in recent corporate history.

The oil giant initially said it would sell $38 billion of assets by the end of 2013 to pay for the billions of dollars of damages claims over the Gulf of Mexico disaster, and the threat of even larger fines. The company has reached that target already, a year earlier than planned. In fact, including the sale of its half of TNK-BP to Rosneft, total asset sales amounted to $65 billion.

The asset sales have succeeded in shoring up BP's finances. Net debt at the end of last year was $27.5 billion, down from $31.5 billion at the end of the third quarter.

The group's exploration prospect inventory has tripled over the past five years. Since early 2010, it has accessed about 400,000 square kilometres of new acreage - more than double the area secured in the previous nine years.

BP's upstream business has also been radically simplified. As well as selling 10% of its oil and gas reserves, it has divested a huge amount of kit, cutting the number of upstream installations it operates by 50% and the number of operated wells by about a third.

This turnaround will take time - in the short term, production will be dampened by its huge divestments, down 150,000 barrels a day in 2013 compared with last year. But 2014 should be better, with highly profitable production kicking off in the Gulf of Mexico and Angola.

The company itself has confirmed operating cash flow in 2014 will be between $30 billion and $31 billion - 50% higher than in 2011 - thanks to the completion of payments into the $20 billion contingency fund, the completion of an upgrade to its Whiting refinery and the start-up of 15 major new projects over the next two years.

But it appears BP's efforts to make a fresh start have been overshadowed by continuing uncertainty over the cost of Deepwater Horizon. While nothing was reported on Macondo in the results statement, barring an out-of-court settlement, the court case for Macondo opens on 25 February in New Orleans. Negative news flow on the trial could prove to be a hindrance for the share price.