LONDON – Cost-cutting and a solid performance from the refining and marketing arm helped British energy producer BP cushion the hit from low oil prices in the first quarter.
Though the company reported a 79 per cent slide in earnings, its share price spiked sharply higher Tuesday as the results were better than anticipated in markets.
BP reported that its underlying replacement cost profit — the oil industry standard, which excludes non-operational items and the value of oil inventories — dropped to $532 million from $2.58 billion in the first quarter of 2015. Though that’s quite a precipitous decline, the result was about $100 million better than analysts had forecast.
BP also said it would maintain its dividend at 10 cents a share — a key factor as the stock is held by many pension funds.
“We think the key takeaway is the strong message on dividend sustainability today,” brokerage firm Bernstein said in a statement. “BP is clearly delivering on its cost reduction plans which are offsetting commodity price weakness and delivering earnings and cash flow ahead of expectations.”
Oil companies rushed to cut costs and curtail investment as oil prices tanked over the past year-and-a-half, striking 12-year lows in January. Though prices have recovered somewhat since, they remain well below the $100 a barrel posted as recently as September 2014. Brent crude, the benchmark for international oil, traded at $44.82 a barrel on Tuesday, up from the $34 a barrel average in the first quarter but down from $54 in the first quarter of 2015.
In recent years, much of the profitability of major oil producers like BP has come from high oil prices. Because of the lower oil price environment, they have sought to keep a lid on costs. BP said Tuesday it had reduced cash costs by $4.6 billion over 2014 levels and cut organic capital expenditure to $3.9 billion in the first quarter from $4.4 billion a year earlier.
“Despite the challenging environment, we are driving towards our near-term goal of rebalancing BP’s cash flows,” Chief Executive Bob Dudley said. “Operational performance is strong and our work to reset costs has considerable momentum and is delivering results.”
BP shares rose 4.3 per cent to 376.1 pence in midday trading in London after reaching a high of 377.65.
The company’s earnings were driven by the so-called downstream business, primarily refining and marketing, which reported an underlying replacement cost profit of $1.8 billion, compared with $2.2 billion a year earlier. The upstream business, including exploration and production, posted a loss of $747 million after a profit of $604 million in the first quarter of 2015.
In a milestone for the company, BP said the bulk of the costs from the 2010 Deepwater Horizon accident are now known after a U.S. District Court in April approved a settlement with the U.S. government and Gulf states. BP set aside an additional $917 million in the first quarter to cover costs related to the accident, bringing the total pre-tax charge to $56.4 billion.