RE: Adjusted earnings beat forecasts2 Nov 2021 08:33
The surge in energy prices this year means BP is ‘gushing cash’, says Richard Hunter, Head of Markets at interactive investor:
“The cash tills are ringing at BP given the oil price headwind, but an accounting adjustment has driven a loss for the quarter.
The adjustment relates to a hedge on higher gas prices which would unwind in the event of falling prices or the delivery of cargoes. Stripping this adjustment out, the underlying replacement cost profit for the quarter was $3.3 billion, comfortably ahead of expectations, and comparing with a profit of $2.8 billion in the previous quarter and $86 million in the corresponding period last year.
BP’s prodigious cash generating ability has not only enabled the announcement of a further planned share buyback of $1.25 billion, but also a remarkable 20% reduction in net debt over the last 12 months, from $40 billion to $32 billion. Meanwhile, the dividend is being maintained, with the current yield of 4.3% a clear enticement to income-seeking investors.
Production has also increased marginally year-on-year, with the company expecting previous production declines to ease as the year wears on. There are expected bumps in the road to come given the volatility of energy prices, higher expected seasonal maintenance activity and some lessening of demand, while the effects of Hurricane Ida are still being felt.
Hunter adds:
The current price of Brent oil of around $85 per barrel compares favourably with BP’s own projections which are based on a price of $60, let alone the “cash balance point” of $42 which the company previously identified.
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