BP Posts Strong Q1 Earnings On Record Upstream Business

BP plc (LON:BP) (NYSE:BP) reported strong first-quarter 2018 results as oil price has started to recover from the slump witnessed nearly four years back. Record oil and gas production along with increased refinery throughput drove earnings, partially offset by increased exploration expenses.

Royal Dutch Shell (LON:RDSa) RDS.A is another European energy giant that reported strong first-quarter profits on Apr 26.

BP reported first-quarter adjusted earnings of 78 cents per American Depositary Share (ADS) on a replacement cost basis, excluding non-operating items. The bottom line surpassed the Zacks Consensus Estimate of 67 cents and the year-ago quarter’s 46 cents.

Total revenues were $69,143 million in the quarter, up from $56,386 million in the year-ago quarter.

The integrated energy major continued to return cash to shareholders through buybacks and dividends payments. Through first-quarter 2018, BP spent $120 million for buying back 18 million worth of shares.

Operational Performance

Upstream

In the first quarter, total production rose 9% year over year to 2.605 million barrels of oil equivalent per day (MMBoe/d). Ramp-up in key developments primarily aided the record volume. Notably, since the October-to-December quarter of 2010, the first-quarter output has been the highest. On top of that, the January-to-March quarter output marked an increase in production for six quarters in a row.

The company sold liquids at $61.40 a barrel in the first quarter as compared with $49.87 in the year-earlier quarter. It sold natural gas at $3.78 per thousand cubic feet, compared with $3.50 a year ago. Overall price realization increased to $41.39 per barrels of oil equivalent (Boe) from the year-ago level of $37.19.

After adjusting for non-operating items and fair value accounting effects, underlying replacement cost profit before interest and tax for the segment was $3,157 million, considerably higher than $1,370 million in the year-ago quarter. Increased realized prices from oil and natural gas and record volumes primarily drove the upside. BP has been pleased with the segment’s performance and identified it as the strongest outcome from upstream businesses since the start of the oil weakness in the July-to-September quarter of 2014.

Downstream

Segmental profits improved to $1,826 million from $1,742 million in the year-ago quarter, courtesy of higher refinery throughput.

Refining marker margin of $11.7 per barrel in the first quarter of 2018 was in line with the year-ago quarter. Total refinery throughput rose to 1,761 thousand barrels per day (MB/d) from 1,676 MB/d in the year-earlier quarter. Refining availability was 94.8%, compared with 95.2% in the year-ago quarter.

Rosneft

The segment recorded profits of $247 million, up from $99 million a year ago.

Exploration Expenses

For the first quarter, BP reported exploration costs of $514 million, up almost 25% from $412 million in the year-ago quarter.

Financials

BP's net debt was $39,993 million at the end of the first quarter, higher than $38,635 million in the year-ago quarter. Net debt ratio was 28.1%, marginally higher than 28% in the prior-year quarter.

Q1 Price Performance

During first-quarter 2018, BP lost 3.5%, faring better than the industry’s 4.1% decline.

Outlook

For the April-to-June quarter of 2018, the company expects a sequential decline in production owing to activities related to maintenance and turnaround. BP added that despite a remarkable turnaround works, the overall refining margin for the industry will likely be seasonally higher.

Zacks Rank & Stocks to Consider

BP carries a Zacks Rank #3 (Hold). A few better-ranked players in the energy space are Baytex Energy Corp. (TO:BTE) and Canadian Natural Resources Limited (TO:CNQ) . Both the stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Baytex managed to beat the Zacks Consensus Estimate in the last three quarters.

Canadian Natural is likely to see year-over-year earnings growth of 151.1% in 2018.

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