After the best of a decade in which “oil spill-related payments” dominated commentary of its earnings results, BP (BP.) can be forgiven for trying to reclaim the narrative in these half-year numbers. That the fanfare should include its largest acquisition this century, first production from three new projects, the first quarterly dividend increase in four years, and vague promises to extend a nascent share buyback programme to $5bn-$6bn (£3.8bn-£4.6bn) might seem a bit overcooked.
The final move, which remains a strategic oddity in light of BP’s ongoing scrip dividend programme, will be funded by “new divestments of $5bn-$6bn, predominantly from the upstream segment”. Whether this complements or subsumes disposal commitments to date is not clear, although the track record on asset sales – still a necessary step to balance the capital structure – remains anaemic.
Then again, the sales commitment may not please all investors. Thanks to increases in production, the upstream division (together with BP’s Rosneft stake) was the big contributor to an underlying replacement cost profit of $2.8bn in the three months to June. This was a fourfold increase on the 2017 comparator, and 5 per cent ahead of consensus forecasts although, as Panmure Gordon analyst Colin Smith pointed out, upstream earnings benefited from “an unusually low exploration charge” of $164m.
BP usually spends closer to $0.5bn on exploration each quarter, although it is possible the supermajor’s determination to land BHP Billiton’s (BLT) US shale assets trumped business-as-usual capital requirements.
With predictable corporate panache, the $10.5bn acquisition has been billed as evidence of “strategic momentum”. However, it is worth remembering that BHP has long struggled with the assets, whose “checkerboard nature” analysts at RBC believe could limit BP’s capacity to turn things around. The verdict from consultancy Rystad Energy – that the unconventional portfolio should be valued at $10.7bn at “a flat Brent oil price of $73 per barrel” – also gives pause for thought.
Analysts at HSBC expect full-year adjusted pre-tax profit of $17.3bn and EPS of 51¢, and $20.3bn and 61¢ in 2019.
| BP (BP.) | ||||
| ORD PRICE: | 567p | MARKET VALUE: | £113bn | |
| TOUCH: | 566.5-567p | 12-MONTH HIGH: | 594p | LOW: 437p |
| DIVIDEND YIELD: | 5.5% | PE RATIO: | 21 | |
| NET ASSET VALUE: | 500¢* | NET DEBT: | 39% | |
| Half-year to 30 Jun | Turnover ($bn) | Pre-tax profit ($bn) | Earnings per share (¢) | Dividend per share (¢) |
| 2017 | 112 | 3.04 | 8.12 | 20.00 |
| 2018 | 144 | 8.90 | 26.4 | 20.25 |
| % change | +28 | +193 | +225 | +1 |
| Ex-div: | 09 Aug | |||
| Payment: | 21 Sep | |||
| £1=$1.31. *Includes intangible assets of $29bn, or 146¢ a share | ||||
