BP Plc (LON:BP.), today announced the results for the 3Q and nine months 2018.
Highlights
– Underlying replacement cost profit for the third quarter of 2018 was $3.8 billion, more than double a year earlier and the highest quarterly result in more than five years, including significant earnings growth from the Upstream and Rosneft.
– Operating cash flow excluding Gulf of Mexico oil spill payments for the quarter was $6.6 billion, including a $0.7 billion working capital build (after adjusting for inventory holding gains).
– Gulf of Mexico oil spill payments in the quarter were $0.5 billion on a post-tax basis.
– Dividend of 10.25 cents a share for the third quarter, 2.5% higher than a year earlier.
• Strong operating performance:
– Very good reliability, with the highest quarterly refining availability for 15 years and BP-operated Upstream plant reliability of 95%.
– Reported oil and gas production was 3.6 million barrels of oil equivalent a day. Upstream underlying production, which excludes Rosneft and is adjusted for portfolio changes and pricing effects, was 6.8% higher than a year earlier, driven by ramp-up of new projects. Rosneft production of 1.2 million barrels of oil equivalent a day was 2.8% higher than last year.
• Strategic delivery:
– The Thunder Horse Northwest expansion project in the Gulf of Mexico and the Western Flank B project in Australia began production in October, both ahead of schedule. They are BP’s fourth and fifth Upstream major projects to start up in 2018.
– Further expansion in fuels marketing, with now around 1,300 convenience partnership sites worldwide and network growth in Mexico.
• BHP transaction:
– The acquisition from BHP is expected to complete on 31 October.
– Reflecting confidence in cash generation and continued capital discipline, and assuming oil prices remain firm in the recent trading range, BP now expects to fund the entire transaction from available cash, rather than using equity for the deferred consideration. In this case, proceeds from the associated $5-6 billion of divestments will be used to reduce net debt.
Bob Dudley – Group chief executive of BP:
Our focus on safe and reliable operations and delivering our strategy is driving strong earnings and growing cash flow. Operations are running well across BP and we’re bringing new, higher-margin barrels into production faster through efficient project execution. We have made very good progress with our acquisition from BHP and expect to complete the transaction tomorrow. This will transform our position in the US Lower 48 and we expect it to create significant value for BP. This progress all underpins our commitment to growing distributions for our shareholders.
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Financial summary |
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Third |
Second |
Third |
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Nine |
Nine |
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quarter |
quarter |
quarter |
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months |
months |
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$ million |
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2018 |
2018 |
2017 |
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2018 |
2017 |
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Profit for the period(a) |
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3,349 |
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2,799 |
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1,769 |
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8,617 |
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3,362 |
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Inventory holding (gains) losses, net of tax |
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(258 |
) |
(1,010 |
) |
(390 |
) |
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(1,348 |
) |
(18 |
) |
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RC profit |
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3,091 |
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1,789 |
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1,379 |
|
|
7,269 |
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3,344 |
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Net (favourable) adverse impact of non-operating items and fair value accounting effects, net of tax |
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747 |
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1,033 |
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486 |
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1,977 |
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715 |
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Underlying RC profit |
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3,838 |
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2,822 |
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1,865 |
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9,246 |
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4,059 |
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RC profit per ordinary share (cents) |
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15.45 |
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8.96 |
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6.98 |
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36.42 |
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17.01 |
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RC profit per ADS (dollars) |
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0.93 |
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0.54 |
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0.42 |
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2.19 |
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1.02 |
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Underlying RC profit per ordinary share (cents) |
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19.18 |
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14.14 |
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9.44 |
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46.32 |
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20.65 |
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Underlying RC profit per ADS (dollars) |
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1.15 |
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0.85 |
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0.57 |
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2.78 |
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1.24 |
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(a) Profit attributable to BP shareholders.
RC profit (loss), underlying RC profit, operating cash flow excluding Gulf of Mexico oil spill payments and working capital are non-GAAP measures. These measures and Upstream plant reliability, refining availability, major projects, inventory holding gains and losses, non-operating items, fair value accounting effects and underlying production are defined in the Glossary on page 31.
Group headlines
Results
For the nine months, underlying replacement cost (RC) profit* was $9,246 million, compared with $4,059 million in 2017. Underlying RC profit is after adjusting RC profit* for a net charge for non-operating items* of $1,619 million and net adverse fair value accounting effects* of $358 million (both on a post-tax basis). RC profit was $7,269 million for the nine months, compared with $3,344 million a year ago.
For the third quarter, underlying RC profit was $3,838 million, compared with $1,865 million in 2017. Underlying RC profit is after adjusting RC profit for a net charge for non-operating items of $649 million and net adverse fair value accounting effects of $98 million (both on a post-tax basis). RC profit was $3,091 million for the third quarter, compared with $1,379 million in 2017.
BP’s profit for the third quarter and nine months was $3,349 million and $8,617 million respectively, compared with $1,769 million and $3,362 million for the same periods in 2017.
See further information on pages 3, 27 and 28.
Non-operating items
Non-operating items amounted to a post-tax charge of $649 million for the quarter and $1,619 million for the nine months. The charge for the quarter includes post-tax amounts relating to the Gulf of Mexico oil spill of $54 million for business economic loss claims and $30 million for other claims and litigation relating to the spill, as well as finance costs in respect of the unwinding of discounting effects relating to oil spill payables. See further information on page 27.
Effective tax rate
The effective tax rate (ETR) on RC profit or loss* for the third quarter and nine months was 38% and 41% respectively, compared with 43% for both periods in 2017. Adjusting for non-operating items and fair value accounting effects, the underlying ETR* for the third quarter and nine months was 36% and 38% respectively, compared with 40% and 42% for the same periods in 2017. The lower underlying ETR for the third quarter reflected lower adjustments in respect of prior years and re-evaluation of deferred tax positions, partly offset by deferred tax charges due to foreign exchange impacts. The lower underlying ETR for the nine months reflected lower exploration write-offs, partly offset by deferred tax charges due to foreign exchange impacts. In the current environment we now expect the underlying ETR for 2018 to be lower than 40%. ETR on RC profit or loss and underlying ETR are non-GAAP measures.
Dividend
BP today announced a quarterly dividend of 10.25 cents per ordinary share ($0.615 per ADS), which is expected to be paid on 21 December 2018. The corresponding amount in sterling will be announced on 10 December 2018. See page 24 for further information.
Share buybacks
BP repurchased 19 million ordinary shares at a cost of $139 million, including fees and stamp duty, during the third quarter of 2018. For the nine months, BP repurchased 48 million ordinary shares at a cost of $339 million, including fees and stamp duty.
Operating cash flow*
Excluding post-tax amounts related to the Gulf of Mexico oil spill, operating cash flow* for the third quarter was $6.6 billion, including a $0.7 billion working capital* build (after adjusting for inventory holding gains*) and $19.0 billion in the nine months, including a $1.1 billion working capital build (after adjusting for inventory holding gains), compared with $6.6 billion and $17.9 billion for the same periods in 2017. Including amounts relating to the Gulf of Mexico oil spill, operating cash flow for the third quarter and nine months was $6.1 billion and $16.0 billion respectively (after a $1.6 billion working capital build for the quarter and $5.5 billion for the nine months), compared with $6.0 billion and $13.0 billion for the same periods in 2017. See also the Glossary on page 31 for further information on working capital.
Capital expenditure*
Organic capital expenditure* for the third quarter and nine months was $3.7 billion and $10.7 billion respectively, compared with $4.0 billion and $11.9 billion for the same periods in 2017.
Inorganic capital expenditure* for the third quarter and nine months was $0.7 billion and $1.5 billion respectively, compared with $0.5 billion and $1.1 billion for the same periods in 2017.
Organic capital expenditure and inorganic capital expenditure are non-GAAP measures. See page 26 for further information.
Divestment and other proceeds
Divestment proceeds* were $0.1 billion for the third quarter and $0.4 billion for the nine months, compared with $0.2 billion and $1.0 billion for the same periods in 2017.
Gearing*
Net debt* at 30 September 2018 was $39.2 billion, compared with $39.8 billion a year ago. Gearing at 30 September 2018 was 27.5%, compared with 28.4% a year ago.
We expect gearing to remain within the target band of 20-30% during the fourth quarter of 2018. As described above, assuming oil prices remain firm, we expect to fund the deferred consideration related to the BHP transaction with available cash rather than issuing equity. As a result, gearing may move temporarily above the top end of the band in early 2019, but is expected to move back down towards the middle of the band by the end of 2019, in line with the generation of free cash flow and receipt of disposal proceeds.
Net debt and gearing are non-GAAP measures.
Brian Gilvary – Chief financial officer of BP:
This quarter’s underlying result was significantly higher than the second quarter in a very similar price environment. Since we announced the BHP transaction, oil prices have firmed to levels significantly above the acquisition assumptions. While oil prices remain at these levels, we expect to finance the transaction fully using cash. In this event, the $5-6 billion divestment programme linked to the transaction will be used to reduce debt. We will also continue our share buyback programme to offset dilution from the scrip dividend.
