BP profit down 26 per cent on weak oil and gas prices

BP raised its dividend and said it had completed a $1.5 billion share buyback programme in a sign of confidence in its growing oil and gas business on the last day in office for Chief Executive Bob Dudley.

BP shares were trading 4.5 per cent higher at 1115 GMT on Tuesday, on course for their biggest daily gain in over a year after the company’s profit beat forecasts for a twelfth quarter in a row.

As Bernard Looney prepares to take the helm, BP struck a positive tone even as oil prices slumped to a near year-low on concerns over China’s coronavirus, bucking a trend among peers that saw a sharp slowdown in revenues last week.

The shareholder rewards came as the London-based company reported a 26 per cent drop in fourth-quarter profit, which easily beat forecasts, and $2.7 billion in charges.

Cash flow rose by more than 10 per cent in 2019 to $25.8 billion, despite lower commodity prices, as a result of higher production - particularly in US shale following the acquisition of BHP assets.

Still, BP’s debt-to-capital ratio, known as gearing, rose by the end of 2019 from a year earlier, even though BP sold $9.4 billion of assets, underlying the strain oil companies face as demand for fuels and chemicals weakened last year.

“Solid delivery in a tough environment,” Redburn analyst Stuart Joyner concluded in a note, adding the focus would be on reducing debt.

Rivals ExxonMobil, Royal Dutch Shell and Chevron reported sharp drops in 2019 revenues due to softer demand, particularly in Asia.

Dudley, 64, bows out after a decade at BP’s helm. He was abruptly ushered in as CEO in October 2010 after his predecessor Tony Hayward stepped down in the wake of the deadly Deepwater Horizon spill in the Gulf of Mexico.

He has since led the company through a deep and long downturn and rising pressure from investors to adapt to the transition to more renewable energy.

Looney, who takes over on Wednesday, is planning to expand BP’s climate targets and is considering a major overhaul to the structure of the 111-year-old company. “I am proud to be handing over a safer and stronger BP to Bernard and his team. I am confident that under their leadership, BP will continue to successfully navigate the rapidly-changing energy landscape,” Dudley said in a statement.

BP reported $2.57 billion in fourth-quarter underlying replacement cost profit, its definition of net income, exceeding analysts’ forecast of $2.1 billion in a company-provided poll.

That was down from $3.5 billion a year earlier, but up from $2.3 billion in the third quarter.

The results were driven by a lower tax rate and stronger-than-expected performance of the oil and gas production unit, or upstream, which saw output rise in 2019 by 3.8 per cent to 2.64 million barrels of oil equivalent per day, driven by a doubling of output from US shale oil following the $10.5 billion acquisition of BHP’s assets in late 2018.

Refining profits dropped by a third in the fourth quarter to $1.44 billion due to a weaker performance of BP’s large oil trading business.

“Our oil trading result was not as strong as the previous quarters even if it had a record year overall,” Chief Financial Officer Brian Gilvary, who steps down in June, told Reuters.

BP raised its dividend by 2.4 per cent to 10.5 cents per share, the second increase since the BHP acquisition. BP also denied media reports it was considering selling its 10.75 per cent stake in Russian oil giant Rosneft. “Rosneft is one of our closest strategic partners,” Gilvary said.

BP said the deadly coronavirus outbreak could cut global oil demand growth by 40 per cent this year, putting pressure on Opec producers and Russia to curb supplies to keep prices in check.

Brian Gilvary, the UK oil major’s chief financial officer, said 300,000-500,000 barrels a day were at risk this year — a big chunk of 1.2m b/d growth initially expected by the company and global energy agencies.

The falling price presents an additional challenge for BP just as Bernard Looney, its head of exploration and production, takes over as chief executive on Wednesday from Bob Dudley, who leaves the company after nearly 10 years at the helm.

Agencies