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BP sneaks into black in Q3

Higher oil prices and the lack of write-downs mean BP hits profit on its preferred metric, but warns on continued challenging conditions
October 27, 2020
  • Higher oil prices and lack of major write-offs sees return to profitability 
  • Thousands of BP workers to lose their jobs in the next two months

BP (BP.) scraped into profitability in the third quarter of the year but has warned of further difficulties ahead. The oil major has already slashed its dividend and spending this year, and in the three months to September it did not see the trading boost that had helped its earnings in the previous quarter. 

IC TIP: Sell at 203p

Headwinds for the period included weaker refining margins, lower gas prices and lower overall demand for its products. The company, trading at record lows, said Covid-19 would continue to contribute to a “volatile and challenging” trading environment. 

BP recorded an underlying replacement cost profit (its preferred metric) of $86m, well ahead of consensus estimates. This was also up on the June quarter’s $6.7bn loss given the lack of major write-offs and higher oil prices. The company had a break-even point of $42 per barrel (bbl) in the quarter, not far off the oil price in recent weeks. The upstream and downstream divisions saw improvements on the June quarter while Rosneft losses widened.  

The quarterly dividend is 5.25c, in line with the new level announced in August. 

Chief executive Bernard Looney said cuts to capital spending were progressing as expected, with 2020 guidance, excluding acquisitions, maintained at $12bn and 2021 forecast at $13bn-$15bn with inorganic spending included. Layoffs and redundancies totalling 10,000 jobs are expected to cost $1.4bn this year and the next, with the majority of that cost coming in 2020.

The company’s buzzword for the September performance was “resilient”, with Mr Looney and finance chief Murray Auchincloss letting few sentences go by without it in the earnings call. We agree, but still don’t see much joy for shareholders in the coming months. Sell.