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BP poised to move on

BP has swung to a half-year loss on the back of another hefty impairment for the Deepwater Horizon disaster, but weak energy prices now present the immediate challenge.
July 28, 2015

Despite $3.2bn (£2bn) in tax credits, BP (BP.) posted a half-year loss of $3.1bn, against a profit of $7.1bn at the 2014 half-year stage. The group's share price didn't suffer unduly, as the market had already priced in the effects of this month's $18.7bn settlement with the US Department of Justice over Deepwater Horizon. In the event, BP booked a pre-tax impairment charge of $10.8bn for the second quarter, which could signal that the disaster has finally reached its end-game.

IC TIP: Hold at 385.55p

But even if BP's travails over the Gulf of Mexico are soon consigned to the history books, the integrated oil major's financial performance is now imperilled by the continuing slump in global energy prices – another factor beyond its control.

On average, the group received $51.49 for every barrel of crude/condensate sold during the period, against $97.03 for the corresponding period in 2014. Meanwhile, realised natural gas prices were down by nearly a third, with North American Henry Hub prices displaying particular weakness.

The segmental analysis of the period shows an improved performance from the group's refining businesses offset by a sharp fall in underlying profits from its 20 per cent stake in Rosneft. An enhanced contribution from the Russian energy giant surprised analysts at the full-year mark, but the European sanctions regime has been beefed up in the intervening period. Overall, replacement cost profits - a measure that takes into account fluctuations in the oil price - came in at $2.4bn during the second quarter, against $5.9bn last year.

With over $40bn in enforced asset sales, BP's management has been preoccupied with the fallout from Deepwater Horizon over the past five years. The gloomy outlook on energy markets presents Bob Dudley and his team with a new strategic challenge with regard to capital allocation. The group has already taken an axe to its capital commitments, but more cuts could follow. Excluding acquisitions, BP's capital expenditure for the full year is now expected to be below $20bn - down about a fifth on the outlay two years ago.

Prior to these figures JPMorgan Cazenove was forecasting 2015 adjusted EPS of $0.39, against $0.67 in 2014.

BP (BP.)
ORD PRICE:386pMARKET VALUE:£70.8bn
TOUCH:386-387p12-MONTH HIGH:501pLOW: 364p
DIVIDEND YIELD:6.6%PE RATIO:NA
NET ASSET VALUE:581¢*NET DEBT:23%

Half-year to 30 JuneTurnover ($bn)Pre-tax profit ($bn)Earnings per share (¢)Dividend per share (p)
2014188.8210.4237.411.51
2015116.72-6.34-17.613.20
% change-38--+15

Ex-div: 6 Aug

Payment: 18 Sep

£1 = $1.55 *Includes intangible assets of $31bn, or 171¢ a share