BP dodges oil-industry gloom as profit jumps with production

LONDON (Bloomberg) -- BP dodged the disappointment that afflicted other oil-company earnings as it did a better job of exploiting the upswing in crude prices.

Oil and gas output rose following the startup of seven new projects last year, helping the London-based giant post a fivefold increase in fourth-quarter profit from a year earlier to the highest since the start of 2015. While cash flow from operations fell slightly, BP avoided any major miss compared with expectations.

“The company is operating and firing on all cylinders,” CEO Bob Dudley said in an interview with Bloomberg television. “We’re looking to generate much higher levels of free cash flow all the way through to the end of the decade and beyond.”

Besting its oil brethren is especially important for BP. In addition to navigating its way out of the worst industry downturn in a generation, the company has the added headwind of paying the huge bill for 2010’s fatal Deepwater Horizon disaster and oil spill.

Adjusted net income of $2.11 billion beat analysts’ expectations of $1.95 billion. Net debt fell to $37.8 billion at the end of the fourth quarter, down significantly from $39.8 billion in the preceding period.

Missed Expectations

Fourth-quarter earnings have so far incurred shareholders’ wrath, with sharp sell-offs after Exxon Mobil Corp. and Chevron Corp. fell short on profit and Royal Dutch Shell missed on cash flow. BP shares fell 1.3% to 476 pence in London as a broader rout in equity markets continued.

Those companies’ failure to fully capitalize on the recovery in global energy markets underscores the complexity of their business model. While rising crude prices buoyed profit from exploration and production, other parts of their sprawling empires suffered from a combination of lousy trading results, one-time U.S. tax charges, output woes or narrowing refining margins.

While BP also fell victim to an under-performing refining business and booked another $1.7 billion charge related to the Macondo oil spill, the rapid rebound in its production was a bright spot. Excluding its share of Russia’s Rosneft, BP produced 2.581 MMbpd the fourth quarter, up from 2.186 MMbpd a year earlier. It expects output to keep rising this year.

“BP’s results show sound improvement in the upstream which is growing strongly with new projects,” Rohan Murphy, an energy analyst at Allianz Global Investors, said by email. “2018 should be a year where operating cash flow can cover cash capex, full cash dividend and Macondo payments without disposal proceeds.”

There’s no guarantee that the cost of the Deepwater Horizon disaster won’t rise again, but it will be entirely manageable from cash flow this year and next, CFO Brian Gilvary said by phone.

"Debt’s in a pretty good place,” dropping by about $2 billion last quarter following $4.3 billion of asset sales for the year, Gilvary said. The company is back to breaking even at current oil prices, but will still maintain capital discipline and plans divestments of between $2 billion and $3 billion in 2018, he said.