A raft of asset sales, particularly that of
BP’s full-year underlying replacement cost profit - which is adjusted for oil price movements and accounting effects - actually fell 19 per cent to $17.6bn (£11.3bn), although that was in-line with analysts' estimates. Given that BP generated underlying profit from TNK-BP of $4.13bn in 2011, its sale to Rosneft was inevitably going to hit group earnings hard. BP was also forced to book $6.28bn in impairment charges linked to asset sales, compared with $2.06bn in 2011.
Daily production during the fourth-quarter, excluding TNK-BP, also fell 7 per cent in the year to an average of 2.29m barrels of oil equivalent (boe). What's more, BP revealed that output would be lower in 2013, with asset disposals set to reduce daily production by 150,000 boe. Management anticipates a somewhat disappointing reserve replacement ratio, in the range of 75-85 per cent, too. However, the production decline linked to the TNK-BP sale will be gradually offset by various projects that are expected to come on-stream by the year-end - including North Rankin 2 in Australia and Angola LNG. Another six major projects are scheduled for completion next year, with BP allocating approximately $24bn-$27bn for its annual capital expenditure budget through 2014-2020.
Meanwhile, the Deepwater Horizon Gulf of Mexico oil spill in 2010 continues to cast its shadow. BP faces a trial in the US later this month, although clarity on the extent of civil penalties and damages is unlikely to be known before the year-end. Nevertheless, BP has shored-up its balance sheet after a total of $65bn of asset sales, allowing it to absorb the $42.2bn in aggregate costs to date linked to the spill.
Investec Securities anticipates adjusted 2013 EPS of 99.1¢ (2012: 94.4p).
| BP (BP.) | ||||
|---|---|---|---|---|
| ORD PRICE: | 467p | MARKET VALUE: | £89.5bn | |
| TOUCH: | 467-468p | 12-MONTH HIGH: | 512p | LOW: 390p |
| DIVIDEND YIELD: | 4.6% | PE RATIO: | 12 | |
| NET ASSET VALUE: | 618¢* | NET DEBT: | 23% | |
IC VIEW:
Beyond this year, BP should benefit from new production streams and, hopefully, the definitive crystallisation of its Deepwater Horizon liabilities. But such prospects remain fairly distant and, even though a forward PE ratio of seven looks undemanding, near-term catalysts for a re-rating are hard to spot. Hold.
Last IC view: Hold, 452p, 22 October 2012
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