BP Plc (LON:BP) shares advanced almost 4% on Tuesday as the City responded to what the oil supermajor described as ‘solid’ results for the first half of the year.
It reported a first-half profit of around US$1.6bn, compared to a US$2bn loss in the same period of 2016, thanks in part to improved production volumes (output was up 10% in the upstream business).
“We delivered strong operational performance in the first half of 2017 and have considerable strategic momentum coming into the rest of the year and 2018, with rising production from our new upstream projects and marketing growth in the downstream," said Bob Dudley, BP chief executive.
It wasn’t all good news, however, as the Gulf of Mexico continues to impact with a US$2bn dent in cash flow from pay-outs. Cash flow amounted to US$4.9bn (excluding oil spill pay outs it would’ve amounted to US$6.9bn).
At the same time, it confirmed a write-off of just over US$750mln against exploration assets in Angola. BP kept its dividend set at 10 cents per share.
Nicholas Hyett, analyst at Hargreaves Lansdown, said in a note that underlying profit was up 75% to US$2.2bn, thanks largely to the recovery of its upstream business.
BP could’ve been in pretty good shape
“Were it not for the Deepwater Horizon oil spill more than 7 years ago, BP would be in pretty good shape right now,” Hyett said.
“Despite the tough oil price environment, cash flows would be comfortably ahead of capex and dividend expenses, and the group is still managing to spend a reasonable amount on developing new fields.”
He added: “Fortunately the group’s upstream division has delivered a strong set of numbers this time out, and while the downstream refining business hasn’t delivered the growth we’ve seen from the likes of Shell, it remains robustly profitable.
“Gulf of Mexico costs are expected to fall from here, but BP remains a bit of a waiting game.”
Cash flow
Brian Gilvary, BP chief financial officer, meanwhile, said: “Cash flow was strong in the first half - organic cash flow exceeded organic capital expenditure and dividends paid.
“While net debt rose primarily due to Gulf of Mexico payments, we expect this will improve over the second half as these payments decline and divestment proceeds come in towards the end of the year."