BP cheered investors with a better-than-expected second quarter performance as it swung back into the black with a $553 million profit.
The result compares with a $2.2 billion loss a year ago when it booked multi-billion dollar charges related to the Gulf of Mexico disaster.
Excluding one-off charges, BP’s underlying profits fell by 5 per cent to $684 million, as the impact of higher oil and gas prices was outweighed by the costs of writing off an abandoned project in Angola.
The underlying result was still significantly better than the $500 million analysts had expected, sending shares in BP up by more than 3 per cent in morning trading.
Oil prices in the second quarter averaged $50 a barrel, up from $46 a barrel a year ago.
Advertisement
BP booked $753 million in costs for writing off failed exploration, primarily due to concluding that the Katambi gas discovery it made off the coast of Angola in 2014 was not commercially viable to develop.
Bob Dudley, the chief executive, said that it was adjusting to “the new oil price environment” and was assuming prices in a range of between $45 and $55 a barrel next year. It was planning for oil prices of about $50 over the next five years.
“It is a tough environment and it could remain that way for some time,” he said.
BP is yet to reduce its costs enough to break even at current oil prices and said that its net debt increased to $39.8 billion at the end of June, up from $38.6 billion three months ago. That contrasts with rivals such as Royal Dutch Shell, which have started to pay off their debts.
Brian Gilvary, chief financial officer, said that its debt had risen primarily because of cash payments related to the Gulf of Mexico disaster. It expects these payments to fall in the second half of the year while cash proceeds from asset sales should increase. The company is aiming for divestments and Gulf of Mexico costs to balance each other out in the longer term.
Advertisement
Excluding these, “organic cashflow exceeded organic capital expenditure and dividends paid” over the first half, Mr Gilvary said.
BP alarmed investors when it warned in February that it would need oil at $60 a barrel this year to balance its “organic sources and uses of cash”, although it was aiming to cut that to $35 to $40 a barrel by 2021.
Analysts said that it appeared to have made quick progress in reducing that break-even level.
Over the first half of the year it had $600 million of organic cashflow surplus at oil prices averaging $52 a barrel, which Mr Gilvary said meant it could balance its books “comfortably” at less than $50 a barrel.
The company is targeting capital expenditure of between $15 billion and $17 billion a year out until 2021.
Advertisement
Mr Gilvary said he expected this to be “at the low end of this range should oil prices remain around $50 per barrel” next year, but that it could cut this further if prices remained lower.