BP Lags Q2 Earnings & Revenue Estimates, Halves Dividend

BP plc BP reported second-quarter 2020 adjusted loss of $1.98 per American Depositary Share (ADS) on a replacement cost basis, excluding non-operating items. The bottom line was wider than the Zacks Consensus Estimate of a loss of 99 cents. In the year-ago quarter, the company reported earnings of 83 cents per share.

Total revenues of $31,190 million declined from $73,747 million in the year-ago quarter and missed the Zacks Consensus Estimate of $42,230 million.

The weakness in first-quarter results is largely a reflection of drop in oil equivalent production, commodity prices and refining marker margin. In particular, the coronavirus pandemic — which dented global energy demand — hurt the company’s upstream and Rosneft businesses.

Share Repurchase & Dividend Cut

BP did not carry out the share repurchase program in the second quarter. In the first quarter, it bought back 120 million ordinary shares for $776 million.

Moreover, the company announced a quarterly dividend of 31.5 cents per ADS, which will be paid on Sep 25. This represents a 50% decline from the previous dividend payment of 63 cents per ADS. The dividend cut was a strategic move by the company to protect its cash position amid the coronavirus crisis that caused significant energy demand destruction. Another energy major, Royal Dutch Shell plc RDS.A also slashed dividend for the same reason last April.

BP p.l.c. Price, Consensus and EPS Surprise

BP p.l.c. price-consensus-eps-surprise-chart | BP p.l.c. Quote

BP’s Operational Performance

Upstream:

For the second quarter, total production of 2,525 thousand barrels of oil equivalent per day (MBoe/d) declined from 2,625 MBoe/d in the year-ago quarter. Production was curtailed due to demand destruction and OPEC+ restrictions.

BP sold liquids at $22.75 a barrel in the second quarter compared with $62.63 in the prior-year period. Moreover, it sold natural gas at $2.53 per thousand cubic feet compared with $3.35 in the year-ago quarter. Overall price realization fell to $19.06 per Boe from the year-ago level of $40.64.

After adjusting for non-operating items and fair value accounting effects, underlying replacement cost loss before interest and tax for the segment amounted to $8,487 million. The figure deteriorated from a profit of $3,413 million in the year-ago quarter. Lower realized prices from oil equivalent barrels of liquids primarily caused the downside.

Downstream:

Segmental profits increased to $1,405 million from $1,365 million in the year-ago quarter, primarily due to higher profits from operations in the United States. Profits from fuel operations rose from the prior-year quarter.

Refining marker margin of $5.9 per barrel for the second quarter was lower than the year-earlier quarter’s $15.2. Moreover, total refinery throughput decreased to 1,487 thousand barrels a day (MBbls/d) from 1,597 MBbls/d in the prior-year quarter. The company’s refinery throughputs in the United States declined, while the same in Europe marginally rose from the year-ago quarter.

Total sales volumes of refined products fell to 5,093 MBbls/d from 5,884 MBbls/d in the year-ago period. Refining availability rose to 95.6% for the quarter from the year-ago level of 93.4%.

Rosneft:

Loss from the segment amounted to $124 million against the year-ago adjusted profit of $525 million. The decline was primarily caused by the downward spiraling of oil prices. BP has a 19.75% ownership stake in Russia's Rosneft.

Oil Spill Costs & Capex

Through the June quarter, the integrated energy firm made a payment of $1,097 million — after tax — associated with the oil spill incident in the Gulf of Mexico. Notably, organic capital expenditure for the quarter was recorded at $3 billion.

Financials

BP's net debt — including leases — was $50,161 million at second quarter-end, lower than $60,618 million in the prior-year quarter. Gearing was recorded at 33.1% compared with 36.2% in the prior-year quarter.

Outlook

BP expects oil prices to remain under pressure due to current market volatility. The company anticipates global GDP for 2020 to fall 4-5% from a year ago. As such, oil demand will likely be 8-9 million bpd down from 2019 levels. The pandemic has affected the development of the company’s major projects like Greater Tortue Ahmeyin Phase 1, Mad Dog 2, Tangguh Expansion and Trinidad Cassia Compression.

BP intends to boost low carbon spending to $5 billion per annum by 2030. Within this time period, it plans to reduce emissions from operations by 30-35%. It also intends to enhance renewable power generation capacity to 50 gigawatts and reduce the weightage of hydrocarbons from the portfolio by 40% from 2019 levels.

Zacks Rank & Stocks to Consider

The company currently has a Zacks Rank #3 (Hold). Some better-ranked players in the energy space include Indonesia Energy Corporation Limited INDO and EOG Resources, Inc. EOG, each holding a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Indonesia Energy’s bottom line for 2020 is expected to rise 78.6% year over year.

EOG Resources’ bottom line for the next year is expected to rise 209.6% year over year.

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