BP’s share price has bounced up by close to 4.5% so far today on a fourth quarter surge in output which doubled full-year profits. The increase in oil and gas output helped the energy giant to beat analyst forecasts by a significant margin. As well as simply ramping up output volumes to boost revenues, the company announced that margins had been improved as a result of new operational efficiencies at refineries and higher margin projects coming online.
BP’s preferred formula for calculating net income, ‘underlying replacement cost profits’, came in at $3.5 billion over the fourth quarter. That was almost $1 billion ahead of analysts’ estimates for $2.6 billion, and a big improvement on the same quarter a year earlier, which brought in $2.1 billion. Annual profits hit $12.7 billion, more than double the previous year’s $6.2 billion. In a sign of how well BP have restructured in recent years, those earnings compare to previous periods during which oil has consistently traded at close to $100 a barrel.
BP’s management have reacted positively to the 2010 Deepwater Horizon oil spill disaster and a tough several years for the energy industry. Years of cost cutting and prioritising higher margin projects are now bearing fruit and allowing BP to again grow its business.
The company expects 2019 to be another year of strong growth for its net cash from operating activities figure which increased to $6.8 billion over Q4 of 2018 from $5.9 billion in 2017. The acquisition of BHP’s US shale assets and new fields coming online raised average daily output by 2.4% to 3.7 million barrels of oil equivalent a day over the full year.
Net debt has, however, risen as a result of the decision to meet the entire cost of the $10.5 billion BHP shale assets acquisition in cash. It has risen to $44.1 billion from $37.8 billion at the end of 2017. Gearing, calculated as the value of debt compared to equity issued, also grew to 30.3% from 27.4%. However, financial discipline and planning based on the conservative average future oil price of $60-$65 a barrel should mean that BP’s debt level is well under control.
The company announced a quarterly dividend of 10.25 cents a share will be paid out. Shell raised its dividend last year for the first time in four years.
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