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Does BP see growth on the horizon?

Headline figures for BP were again knocked by prices and another meaty legal charge at the half-year, but a new chapter appears to be opening up for the super major
July 26, 2016

Weak oil and gas prices were again to blame for a sharp drop in first-half profit at BP (BP.), despite a 2.3 per cent increase in production to 2.3m barrels a day (boepd). Underlying replacement cost profit - which adjusts for non-operating items and fair value accounting effects - fell from $3.89bn (£2.96bn) to $1.25bn for the six months to June, missing analysts' expectations.

IC TIP: Hold at 430p

There are no prizes for guessing where the $5.2bn second quarter pre-tax hit to statutory figures came from, although the group believes - after six long years and $61.6bn of associated costs - that all material liabilities from the Deepwater Horizon incident are now accounted for. This latest non-operating charge was also just below the year-on-year increase in net debt, which at $30.9bn puts BP at the mid-point of its target gearing ratio.

Beyond the slightly disappointing headline numbers, further anticipated project cuts are likely to have contributed to the 2.8 per cent share price decline that greeted these results. But while full-year capital expenditure is now expected to be below the $17bn figure quoted in first-quarter results, there are indications that BP is returning to growth. It will have added 500,000boepd of production capacity by the end of next year, and a further 300,000 barrels by 2020. Three major projects commissioned in the period should support this goal: expansion of the enormous LNG facility in Tangguh, Indonesia, the Attol gas development offshore Egypt, and a new water injection project on the Thunder Horse field in the Gulf of Mexico.

Despite this, chief executive Bob Dudley is keen to stress his preference for "value over volume", ever conscious of the need to rebalance the use of cash to support dividend payments. The pay rate - whose second-quarter sterling equivalent will be announced on 6 September after going ex-dividend - should from 2017 be sustained even in a $50-$55 per barrel oil price range.

Prior to these results, JPMorgan was forecasting adjusted pre-tax income of $5.57bn and EPS of 22¢ in 2016, against $7.39bn and 32¢ in the 12 months to December 2015.

BP (BP.)

ORD PRICE:430pMARKET VALUE:£80.8bn
TOUCH:430-430.2p12-MONTH HIGH:464pLOW: 309p
DIVIDEND YIELD:6.3%PE RATIO:na
NET ASSET VALUE:494¢*NET DEBT:33%

Half-year to 30 JunTurnover ($bn)Pre-tax profit ($bn)Earnings per share (¢)Dividend per share (p)
2015118-6.3-17.613.2
201685.0-4.2-10.813.9
% change-28--+6

Ex-div: 4 Aug

Payment: 16 Sep

£1=$1.31. *Includes intangible assets of $29.7bn, or 158¢ a share