LONDON (Alliance News) - Oil major BP PLC on Tuesday said if oil prices remain were they are it may be able to fund its acquisition of US shale assets entirely from cash.
BP shares were up 3.8% on Tuesday morning, trading at a price of 555.60 pence each.
BP in July said it agreed to buy fellow FTSE 100 constituent BHP Billiton PLC's US shale assets for USD10.5 billion. Some USD5.3 billion would be upfront, with the rest deferred and in instalments, and these were to be funded by equity issues.
However, on Tuesday, Chief Financial Officer Brian Gilvary said: "Since we announced the BHP transaction, oil prices have firmed to levels significantly above the acquisition assumptions.
"While oil prices remain at these levels, we expect to finance the transaction fully using cash."
Brent oil was quoted at USD77.06 a barrel early Tuesday, but during the three months to September, the price of Brent oil hit a high of USD86.71 - its best level since late 2014.
The acquisition, BP said, is expected to complete on Wednesday.
Rising oil prices have, over the past year or so, significantly increased the oil industry's earnings.
Back in February, BP said its 2017 underlying replacement cost profit had more than doubled to USD6.17 billion, with the figure climbing tenfold in its Upstream division. Peer Royal Dutch Shell PLC's current cost of supply earnings for 2017 likewise more than doubled, to USD15.76 billion.
This theme has continued, but BP has managed to also increase its production as the price of oil has risen. BP's production for the three months to September was flat year-on-year at 2.5 million barrels of oil equivalent per day, but on an underlying basis was 6.8% higher. The underlying figure excludes BP's stake in Russian firm Rosneft and portfolio changes.
BP has begun five major Upstream projects so far in 2018, with expansion at the Gulf of Mexico's Thunder Horse and the starting-up of the Western Flank B site in Australia coming in after the third quarter ended.
Earlier in the year, BP got production started at Azerbaijan's Shah Deniz 2, Egypt's Atoll, as well as the expanded Taas-Yuryakh project in Russia.
This increase in production as well as the oil price rise has led BP to post replacement cost profit for the third quarter of USD3.09 billion, more than double the USD1.38 billion it posted the same period a year prior. Compared to the second quarter of 2018, the figure was 73% higher.
On an underlying basis, BP's replacement cost profit was USD3.84 billion, up from USD1.87 billion a year before and USD2.82 billion in the second quarter.
This USD3.84 billion underlying replacement cost profit figure was its best result in over five years, BP said.
Profit attributable to shareholders came in at USD3.35 billion for the second quarter, around double the USD1.77 billion in the third quarter of 2017 and 20% up quarter-on-quarter.
BP said operating reliability was "very good" during the period, with the highest quarterly refining availability for 15 years.
Looking ahead, BP expects fourth-quarter production to rise on the third quarter, due to the acquisition of BHP Billiton assets.
The company is paying a 10.25 US cent dividend for the quarter, 2.5% higher year-on-year.
BP's Upstream division posted replacement cost profit before interest and tax of USD3.47 billion for the quarter, up from USD1.24 billion year-on-year, while in Downstream the figure increased to USD2.25 billion from USD2.18 billion.
Replacement cost profit before interest and tax from Russia's Rosneft, in which BP has a stake just shy of 20%, surged to USD808 million from just USD137 million a year prior.
BP sold off USD400 million worth of assets during the first nine months of 2018, but it expects the figure to top USD3 billion for the year. On Monday, RBC Capital Markets had said it expects a "significant" ramp-up in divestments over the last few months of the year if it is to hit its target.
Payments for the 2010 Gulf of Mexico oil spill, which have been partly covered by asset sales, totalled USD2.9 billion for the first nine months of 2018, and are expected to be "just over" USD3 billion for the year as a whole.
At the time of 2017 results in February, BP had said it expected payments to start "winding down". As of the end of 2017, BP had paid out USD65.77 billion due to the accident, which killed 11 people and caused significant environmental damage.
BP's Chief Executive Bob Dudley commented: "Our focus on safe and reliable operations and delivering our strategy is driving strong earnings and growing cash flow.
"Operations are running well across BP, and we're bringing new, higher-margin barrels into production faster through efficient project execution. We have made very good progress with our acquisition from BHP and expect to complete the transaction tomorrow."
He added: "This will transform our position in the US Lower 48 and we expect it to create significant value for BP. This progress all underpins our commitment to growing distributions for our shareholders."
