LONDON (Alliance News) - Oil major BP PLC is to make further asset sales over the next two years, the company said on Tuesday, as it comfortably beat the market's expectations for 2018 results.
BP sold USD3.5 billion worth of assets in 2018, and plans to divest a further USD10 billion of assets over the next two years. The USD3.5 billion sold off in 2018 compares to USD4.3 billion in 2017.
That USD10 billion guidance includes the USD5 billion to USD6 billion already announced following its US shale energy acquisitions from Anglo-Australian miner BHP Group PLC last summer.
The shale assets bought by BP, in a deal announced in July, are the Eagle Ford, Haynesville, Permian, and Fayetteville sites onshore US, which had at the time combined output of 190,000 barrels of oil equivalent per day. They also had as of July some 4.6 billion barrels of oil equivalent in resources.
Given BP's existing US operations onshore produced around 315,000 barrels of oil equivalent per day at the time, this represented a "significant upgrade" for the company's operations in that part of the world, Upstream Chief Executive Bernard Looney said at the time.
BP said in July it would, following the deal, be selling USD5 billion to USD6 billion of assets on top of the USD2 billion to USD3 billion per year divestment programme already in place.
In December, Reuters reported BP is to sell USD3 billion worth of assets onshore US, to help it pay for the USD10.5 billion deal from BHP.
Turning to 2018 results, issued Tuesday, a strong performance in BP's Upstream arm helped the company beat expectations for profit in both the last quarter and the year as a whole.
Upstream production increased 3.0% year-on-year excluding BP's stake in Russian oil firm Rosneft to 2.5 million barrels of oil equivalent per day. Group production in 2018 was 3.7 million barrels of oil equivalent a day on average, 2.4% higher than in 2017.
Upstream's fourth quarter production increased 1.8% year-on-year to 2.6 million barrels of oil equivalent per day on average.
BP's Upstream plant reliability was a record 96% in 2018, it said, while adjusted for portfolio changes Upstream production increased 8.2% on the back of the better reliability as well as project ramp-ups.
Upstream 2018 underlying replacement cost profit - BP's preferred metric - before interest and tax was USD14.55 billion, well up from USD5.87 billion a year earlier.
BP brought six new Upstream projects on stream during the year, the most recent being the Clair Ridge project west of Shetland in the North Sea.
Before that, BP had started production at projects in Egypt, Russia, Azerbaijan, the Gulf of Mexico, and Australia. Since 2016, it has brought 19 major projects online.
Looking ahead in the Upstream division, 2019 underlying production is guided by BP to increase due to major projects, though the actual outcome will depend on the exact timing of new output, as well as divestment and acquisition activity.
"We expect first quarter 2019 reported production to be flat with fourth quarter 2018 with divestments of assets in the North Sea and Alaska and turnaround and maintenance activities mainly in the high margin Gulf of Mexico region, offset by major project start-ups and the benefit of the BHP assets acquired by BPX Energy," BP said.
BP's Downstream business had a "strong" 2018, the company continued. Downstream availability was at 95% during the year with record refining throughput also recorded.
Downstream's earnings growth was more modest, however, than in the Upstream business, although quarterly profit was a record.
Underlying RC profit in Downstream increased to USD7.56 billion from USD6.97 billion for 2018 year-on-year. In the fourth quarter, the figure climbed to USD2.17 billion from USD1.47 billion.
In Fuels, within Downstream, underlying RC profit was USD5.64 billion for 2018 from USD4.87 billion in 2017.
"Strong fuels marketing earnings growth for the quarter and full year reflects the benefits from our strategic improvement programmes, enabling improved margin capture and supply chain optimization," said BP.
The strong refining performance was due to increased commercial optimisation, BP added, as well as a generally strong operational performance, though there were lower industry margins.
Within Lubricants, also in the Downstream division, 2018 underlying RC profit fell to USD1.29 billion from USD1.48 billion on the year. "The result for the quarter and full year reflects continued premium brand growth, more than offset by the adverse lag impact of increasing base oil prices, as well as adverse foreign exchange rate movements," said BP.
Also within Downstream, Petrochemicals increased underlying RC profit for the year to USD627 million from USD616 million, as margins improved and costs were kept under control.
"Looking to the first quarter of 2019, we expect significantly lower industry refining margins and narrower North American heavy crude oil discounts," commented BP.
Underlying RC profit from Rosneft jumped to USD2.29 billion from USD923 billion for the year, as higher oil prices and better foreign exchange rates helped the Russian oil producer.
BP owns just under 20% of Rosneft, with Chief Executive Bob Dudley sat on Rosneft's board. Together, BP and Rosneft operate three joint ventures in Russia.
At a group level, BP's underlying RC profit came in at USD12.72 billion, up from USD6.17 billion in 2017. Market consensus had seen a figure of USD11.88 billion.
Fourth quarter underlying RC profit was USD3.48 billion, up from USD2.11 billion the same period a year before. Expectations had been for underlying RC profit of USD2.63 billion.
Operating cash flow for the full year, excluding payments related to the 2010 Gulf of Mexico oil spill, was USD26.1 billion, up from USD24.1 billion in 2017.
"The continued strong cash flow growth underpins the balance sheet as we absorb the BHP acquisition and deliver more than USD10 billion of divestments over the next two years," said Chief Financial Officer Brian Gilvary.
Annual revenue was USD298.76 billion, up 24% from USD240.21 billion. For the fourth quarter alone, BP's revenue was USD75.68 billion, up from USD67.82 billion.
BP increased its fourth quarterly dividend by 2.5% on the year to 10.25 US cents. It bought back USD355 million of shares in 2018, and plans to keep buybacks going, and to "fully offset the impact of scrip dilution" by the end of 2019.
BP's net debt at the end of 2018 was USD44.1 billion, up from USD37.8 billion at the end of 2017.
"We now have a powerful track record of safe and reliable performance, efficient execution and capital discipline," said BP Chief Executive Bob Dudley.
"And we're doing this while growing the business - bringing more high-quality projects online, expanding marketing in the Downstream and doing transformative deals such as BHP. Our strategy is clearly working and will serve the company and our shareholders well through the energy transition."
BP shares were 4.3% higher on Tuesday morning at 542.60 pence each, the best performer in the large cap FTSE 100 index. The company has a market capitalisation of GBP110.10 billion, making it London's third largest listed company after Royal Dutch Shell PLC and HSBC Holdings PLC.
BP's results come after peer Shell released its own financials for 2018 on Thursday last week with similarly strong earnings growth also beating the market's expectations.
Shell's current cost of supply earnings excluding identified items attributable to shareholders rose 36% to USD21.40 billion from USD15.76 billion in 2017. Analyst consensus had predicted CCS earnings of USD20.98 billion.
For 2018, Shell's production was 3.7 million barrels of oil equivalent per day, broadly flat year-on-year, compared to BP's 2.4% growth.
Like BP, Shell has been selling off assets over the past few years, and announced last week it has completed its USD30 billion divestment programme.
