BP profits surge as oil rebounds

Profits on an underlying Replacement cost basis, the main measure watched by analysts, came to $1.5bn. This was up from $532m in the first three months of 2016 and higher than the $1.26bn consensus forecast by analysts.

The results added to evidence of recovery in the energy industry after an 80 per cent increase in oil prices from the 12-year lows recorded early last year. ExxonMobil and Chevron, the two biggest US oil groups, both last week beat market expectations with sharply higher first-quarter earnings.

BP’s results, described as “strong” by analysts at Jefferies, provided signs of momentum for a group that has been laid low in recent years by the $62bn cost of cleanup and compensation stemming from its 2010 Deepwater Horizon oil spill in the US.

The company’s shares rose 2.4 per cent to ?4.53 in early morning trading in London.

“We’ve got a good quarter under our belts but it’s just one quarter and there’s no complacency,” said Brian Gilvary, BP chief financial officer. “We’ve still got a lot of work to do and major projects to bring on stream.” Production rose by 5 per cent in the first quarter to 3.5m barrels per day, as the first of seven new projects expected this year came on stream in Trinidad, with more to come in Egypt, the North Sea and the Caribbean.

The group has also made a series of acquisitions to further replenish reserves after the retrenchment, involving asset sales, which followed the Deepwater Horizon disaster.

BP’s operating cash flow rose 47 per cent to $4.4bn in the three months to March 31, excluding Deepwater Horizon expenses.

This helped keep the dividend steady at 10 cents per share. However, Deepwater Horizon payouts of $2.3bn during the first quarter caused BP’s net debt to edge up to $38.6bn, from $30bn one year ago, as the group continued to meet liabilities stemming from a disaster that killed 11 people and spread pollution across the Gulf of Mexico.

Gilvary sad BP’s debt-to-equity ratio of 28 per cent was within the range the group was comfortable with, and reflected a lag between Deepwater Horizon payouts and proceeds expected in the months ahead from $4.5bn to $5.5bn of planned disposals intended to cover those expenses.

In the past month, BP has agreed to sell a 50 per cent stake in the Shanghai Secco Petroleum Company to its local partner, Sinopec, for $1.68bn, as well as its sprawling Forties pipeline system in the North Sea to Ineos, the petrochemicals group, for $250m.

Bob Dudley, BP chief executive, said the year had started well with robust earnings and cash flow in both the group’s upstream and downstream businesses, with further benefits to come from new projects starting production.

“We expect these to drive a material improvement in operating cash flow from the second half,” he added. BP’s upstream earnings from exploration and production came to $1.37bn on an underlying replacement cost basis in the first quarter, compared with a loss of $747m during the same period last year.

Downstream earnings, which include refining, marketing and chemicals, came to $1.74bn, down slightly from $1.81bn last year but above analysts’ expectations.