Rosneft a surprise earner for BP

Shareholders will certainly have welcomed an unexpected contribution from BP's near-20 per cent stake in Russian energy giant Rosneft. It had been widely assumed that the state-controlled entity would be hit hard by the Western sanctions implemented over Moscow's role in the Ukraine crisis. In the event, underlying profits from BP's Rosneft stake came in at $470m for the final quarter. That's down from $1.1bn a year earlier, but much healthier than many had feared. However, BP did point out that Rosneft’s returns are based on provisional numbers and could change in the auditing process.

As a consequence of lower Brent crude prices, BP took a $3.6bn post-tax charge, mainly linked to impairments of upstream assets in the North Sea, Brazil and Angola. The group took a further hit of $477m in the final quarter from legal and remedial costs relating to the Gulf of Mexico oil spill. The total cost of the disaster now stands at $43.5bn.

Predictably, BP has taken an axe to its capital budget in anticipation of a weaker oil price in 2015. The group now estimates that organic capital expenditure is set to come in at $20bn this year, significantly lower than previous guidance of $24-26bn.

With net debt at manageable levels, we think the group's dividend is adequately supported for the time being, even if receipts from divestments, which have hitherto supported cashflow, are likely to taper off this year. Over the long run, the group needs to balance the need for greater capital disciple against its ability to cover the depletion of its reserves with new production. It can't throw off non-core assets indefinitely.

JPMorgan Cazenove expects adjusted EPS of $0.55 this year, rising to $0.68 in 2016.