British energy giant BP plc (BP) reported third quarter 2013 adjusted earnings of $1.17 per American Depositary Share (ADS) on a replacement cost basis, excluding non-operating items. The results surpassed the Zacks Consensus Estimate of 97 cents owing to a rise in oil prices and a high underlying effective tax rate. However, the quarterly figure decreased almost 25.9% from the year-earlier adjusted profit level of $1.58.
BP’s total revenue increased 5% to $96.6 billion in the quarter from the year-ago level of approximately $92.0 billion.
Production and Price Realization
Total production of 2.207 MMBoe/d (million barrels of oil equivalent per day) was down 2.3% year over year, mainly on account of divestments and higher exploration write-offs.
The company sold oil for $100.66 per barrel in the third quarter (versus $99.00 in the year-earlier quarter) and natural gas for $5.01 per thousand cubic feet (versus $4.77 in the year-earlier quarter). Overall price realization rose 3.5% to $62.80 per Boe from the year-ago level of $60.68 per Boe.
Owing to higher liquid and gas realizations, the Upstream segment experienced a 1.3% year-over-year increase in adjusted underlying profit.
Downstream
The Downstream segment posted a profit of $720 million in the quarter, down from the year-ago profit level of $3.0 billion. The result was impacted by weaker refining margins (particularly in the U.S.) as well as the absence of earnings from the divested Texas City and Carson refineries.
Refining Marker Margin decreased to $13.6 per barrel from $22.6 in the third quarter of 2012. Total refinery throughput decreased to 1,702 thousand barrels per day (MB/d) from 2,512 MB/d in the year-earlier quarter. Refining availability saw a rise to 95.3% from 95.0% in the year-earlier quarter.
Rosneft
The Rosneft segment includes equity-accounted earnings from associates, representing BP’s stake in the former. The segment posted profit of $808.0 million in the reported quarter. The performance was aided by the positive impact of foreign currency exchange, a favorable duty lag effect and higher oil prices.
Capital Expenditure and Asset Sale
In the reported quarter, BP’s total capital expenditure was $5.9 billion, all of which was organic. Disposal proceeds received in cash were $0.4 billion.
Balance Sheet
BP’s net debt was $20.1 billion at the end of the third quarter compared with almost $31.3 billion a year ago. Net debt-to-capitalization ratio was 13.3% compared with 20.9% in the third quarter of 2012.
Net cash provided by operating activities was close to $6.3 billion versus $6.2 billion in the year-ago quarter.
Company Outlook
Even though the company remained active in strategic development during the third quarter, it expects flattish production in the upcoming quarter due to planned major turnaround activity and repairs in the high-margin North Sea, planned maintenance in Alaska as well as the continued impact of divestment. For the next quarter, the company expects refining margins to remain under significant pressure due to very high gasoline stocks and new competitor capacity addition as well as lower seasonal demand.
To Conclude
BP is busy reshaping its portfolio through the divestment of smaller non-core properties to pay spill-related costs, while holding onto potential big resources such as Skarv. Hence, refocused upstream activities and a leading position in the Gulf region will definitely help BP in overcoming its near-term tribulations.
However, BP projected a lower production level for the year versus 2012. Although BP’s strategy of offloading non-core upstream properties will prove beneficial over time, its far-reaching turnaround and maintenance ventures in the near term are adding to its worries. The oil major expects to divest a further $10 billion of assets before the end of 2015.
BP – U.K.’s third largest oil company by market value after Royal Dutch Shell plc (RDS.A) – is supported by a Zacks Rank #3, which is equivalent to a Hold rating for a period of one to three months. However, there are other stocks in the oil and gas sector – Clayton Williams Energy, Inc. (CWEI) and TransAtlantic Petroleum Ltd. (TAT) – which hold a Zacks Rank #1 (Strong Buy) and are expected to perform better.
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