BP beats first-quarter estimates on stronger commodity costs; plans to renew share buybacks

BP logos are seen at a BP petrol and diesel filling station southeast of London on June 15, 2020.

BEN STANSALL | AFP | Getty Photos

LONDON — British power main BP on Tuesday reported better-than-expected earnings for the primary quarter, following a interval of stronger commodity costs and a brighter demand outlook.

It comes as oil and fuel majors search to show to buyers that they’ve gained a extra secure footing amid the continuing coronavirus disaster.

BP’s first-quarter underlying substitute value revenue, used as a proxy for web revenue, got here in at $2.6 billion. That in contrast with a revenue of $115 million within the fourth quarter and $791 million for the primary quarter of 2020.

Analysts had anticipated BP to report first-quarter revenue of $1.4 billion, in keeping with Refinitiv.

The London-based power big stated the consequence was pushed by “distinctive” fuel advertising and marketing and buying and selling efficiency, “considerably” greater oil costs and stronger refining margins.

Web debt fell $5.6 billion to $33.3 billion on the finish of the primary three months of the 12 months, which means BP hit its goal of lowering web debt to $35 billion. The corporate stated it will now retire this aim, topic to sustaining a robust funding grade credit standing.

Wanting forward, BP stated it intends to renew share buybacks at a value of round $500 million within the second quarter.

“Total, a really sturdy quarter for the corporate,” BP CEO Bernard Looney instructed CNBC’s “Squawk Field Europe” on Tuesday.

“It has been a 12 months of such uncertainty for the world and for the corporate. There have been many, many questions, after all, and that is comprehensible however I feel at the moment’s outcomes actually reply lots of these questions,” Looney stated.

“It reveals that it’s potential to do two issues directly. It’s potential to ship our shareholders with aggressive money returns and on the identical time transition the corporate to a decrease carbon future.”

Shares of BP rose over 2% throughout early morning offers in London. The agency’s share worth has climbed greater than 16% year-to-date.

The oil and fuel trade was despatched right into a tailspin final 12 months because the Covid-19 pandemic coincided with a historic demand shock, plunging commodity costs, evaporating earnings, unprecedented write-downs and tens of hundreds of job cuts.

BP reported its first full-year web loss in a decade in 2020 as the worldwide well being disaster took a heavy toll on its enterprise operations, with Looney describing the 12-month interval because the “hardest” of his profession.

Gulf of Mexico funds

BP stated it had generated a surplus money circulation of $1.7 billion within the first quarter after reaching its web debt goal a 12 months forward of schedule.

“Swinging again to revenue will hopefully put a nail within the coffin of some of the difficult years in BP’s historical past. However extra vital this morning is the corporate hitting its web debt goal and committing closely to additional share buybacks,” Dan Lane, senior analyst at Freetrade, stated through electronic mail.

In the course of the second three months of the 12 months, the corporate warned money circulation was more likely to be impacted by a $1.2 billion pre-tax annual Gulf of Mexico oil spill fee, additional severance funds and a smaller-than-expected enchancment in refining margins. Because of this, BP stated it anticipated a money circulation deficit within the second quarter.

The Gulf of Mexico funds relate to the worst oil spill in U.S. history. BP’s oil drilling rig Deepwater Horizon, working within the Macondo Prospect within the Gulf of Mexico, exploded simply over 11 years in the past on April 20, 2010. It resulted within the dying of 11 staff and brought about hundreds of thousands of barrels of crude to gush into the Gulf over an 87-day interval.

“The oil giants can shout about their clear power plans all they need however seeing the $1.2bn BP continues to be placing apart to organize for the annual Gulf of Mexico oil spill fee is proof of the luggage they tackle right here,” Lane stated.

“BP is aware of it may well solely actually create worth by way of buybacks. Web debt could also be deemed secure however that is nonetheless a $30bn+ mountain that wants consideration ultimately,” he added.

‘Lingering issues’

BP had beforehand warned of a troublesome begin to 2021, with widespread journey restrictions nonetheless in place, nevertheless it had recommended the rollout of Covid vaccines ought to assist to enhance investor sentiment.

Oil costs have climbed round 25% for the reason that begin of the 12 months, supported by the rollout of Covid vaccines and an bettering financial outlook.

Extra lately, hovering Covid infections in India and an anticipated provide improve from producer group OPEC+ have added downward strain to grease costs.

Worldwide benchmark Brent crude futures traded at $66.01 a barrel on Tuesday morning, up round 0.5% for the session, whereas U.S. West Texas Intermediate futures stood at $62.29, greater than 0.6% greater.

Earlier this month, the Worldwide Vitality Company upgraded its oil demand forecast for 2021, saying market fundamentals appeared “decidedly stronger” compared with April final 12 months.

The Paris-based power company tempered its optimism for the 12 months forward, nevertheless, warning that “lingering issues” persist over the energy of the demand restoration.

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