BP’s (BP.) earnings crashed in the first three month of 2020 because of the collapse of the oil price in March and the drop in demand, which hit downstream sales. The company has maintained its 10.5c quarterly dividend, however, even as its debt shoots up well beyond the 20-30 per cent gearing goal.
BP’s main profit figure, underlying replacement cost profit, fell by two-thirds to $800m compared to the first quarter of 2019. Its profit before tax for the period swung from $4.8bn last year to a $4.5bn loss because of impairments and the worse performance.
The oil price crumbled on 9 March after Saudi Arabia upped supply despite demand plummeting from Covid-19. The upstream division’s underlying operating profit actually came ahead of analyst expectations even at $1bn less than last year, with a figure of $1.8bn.
Rosneft earnings fell into the red, while the downstream earnings missed expectations because of lower refining margins and poorer retail sales. BP also saw a $3.7bn working capital build in the quarter largely because of unsold downstream products, which it expects to reverse in the coming quarters. Its net debt as of 31 March was $51.4bn, up $6bn from the end of 2019.
Chief executive Bernard Looney said the company was working on cutting costs and was aiming to get its break-even cost below $35/bbl next year, including the dividend.
Incoming finance chief Murray Auchincloss said the divestment programme was still aiming for $15bn by mid-2021. The company has $10.1bn of announced deals, but has had to hand the buyer of its Alaska assets, Hilcorp, new options to complete the $5.6bn deal, for which a $4bn up front payment was expected this year. Mr Auchincloss said the remaining $5bn in the divestment plan would be likely to come more from selling infrastructure and real estate instead of upstream assets.
Panmure Gordon analyst Colin Smith said it was no surprise BP would see its divestment plan hit by the current situation. But, Mr Smith said this, combined with the uncertainty over prices for the rest of the year and the state of the balance sheet, may make maintaining the dividend look like “hubris” in retrospect.
BP has cut spending for this year by around 25 per cent, to $12bn. Mr Auchincloss said this would knock around 70,000 barrels per day from 2020 production.
