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Production and debt up at BP

The oil major has new discoveries under its belt, but must shave production elsewhere.
August 2, 2017

As we pointed out in last month’s Income Majors feature, the financial metric currently preoccupying BP (BP.) investors is cash flow. For the last two years, dividend cover has looked thin or non-existent against the “new oil price environment”. At the same time, BP is investing. Just as well, then, that organic cash flow came in $3bn (£2.27bn) higher in the first six months of 2017 at $11.3bn, a sum more than sufficient to cover both the dividend and organic capital expenditure.

IC TIP: Hold at 456p

Unfortunately, this wasn’t enough to pay for a further $4.3bn in payments connected to the Gulf of Mexico oil spill, which continues to reign in BP’s profitability seven years after the disaster. Look beneath those remediation costs, and there is growth at the oil major. Daily group production, which includes BP’s share of Rosneft output, climbed 8 per cent in the period to 3.54m barrels of oil equivalent – roughly the same as Royal Dutch Shell (RDSB).

One reason Shell is twice the size of BP is the latter’s net debt, which is $8.9bn up in a year and increases the expectations on $4.5-5.5bn of divestments expected in 2017. Less worrisome was a $753m write-off for exploration costs largely incurred in Angola; flagged prior to the half-year results and softened by gas discoveries in Egypt, Trinidad and Senegal.

HSBC expects full-year adjusted pre-tax profits of $10bn and EPS of 29¢, against $2.8bn and 14¢ in 2016.

BP (BP.)    
ORD PRICE:456pMARKET VALUE:£ 90.1bn
TOUCH:456.2-456.4p12-MONTH HIGH:521pLOW: 409p
DIVIDEND YIELD:6.6%PE RATIO:31
NET ASSET VALUE:490¢*NET DEBT:40%
Half-year toTurnover   Pre-taxEarnings perDividend
30 Jun($bn) profit ($bn)share (¢) per share (¢)
201685.0-4.24-10.810.0
20171123.048.1210.0
% change+32---
Ex-div:10 Aug   
Payment:22 Sep   
£1=$1.32. *Includes intangible assets of $28.8bn, or 146¢ a share.