BP reports 1Q profit jump, resumes share buybacks

BP reported a strong set of quarterly results today and confirmed that it is embarking on a share buyback programme thanks to a sharp reduction in net debt. But it also warned of headwinds in the second quarter.

Excluding inventory valuation effects, BP made a profit of $3.3bn in January-March, compared with $825mn in the previous three months and a loss of $628mn in the first quarter last year. The company said its results were driven by "an exceptional gas marketing and trading performance, significantly higher oil prices and higher refining margins". BP published today's results under its new structure for the first time, with the former Upstream and Downstream segments replaced by Gas & Low Carbon Energy, Oil Production & Operations, and Customers & Products.

The strong performance came despite a sharp drop in production. Excluding its stake in Russian state-controlled Rosneft, BP's oil and gas output fell by 14pc on the year to 2.22mn b/d of oil equivalent (boe/d) in the first quarter, driven by divestments in the US. The firm said it expects second-quarter production to be lower than the first quarter as a result of asset sales and seasonal maintenance in the US Gulf of Mexico, the North Sea, and Trinidad and Tobago, partly offset by the ramp-up of new gas projects in Egypt and India.

Crude runs at BP's operated refineries declined to 1.6mn b/d in the first quarter from 1.81mn b/d a year earlier. The company expects higher demand for oil products in the second quarter as Covid-19 restrictions ease and vaccination rollouts continue. "This should help provide some support to industry refining margins", it said. "However, realized refining margins are expected to show a smaller improvement due to the slower recovery in diesel and jet demand and a narrower North American heavy crude oil differential." BP also flagged up a higher level of refinery maintenance in the second quarter.

Debt milestone

The firm's net debt — excluding leases — was $33.3bn at the end of March, down from $38.9bn at the start of the year and below its $35bn target. The decline was underpinned by $4.8bn of divestment proceeds in January-March and a steep jump in operating cash flow to $6.1bn from just $952mn a year earlier. "With the acceleration of divestment proceeds, together with strong business performance and the recovery in the price environment, we generated strong cash flow and delivered on our net debt target around a year early," chief executive Bernard Looney said.

Reaching the milestone early has prompted the firm to resume share buybacks. It plans to repurchase $500mn worth of stock in April-June and said it "remains committed to returning at least 60pc of surplus cash flow to shareholders through share buybacks, subject to maintaining a strong investment grade credit rating".

After paying capital expenditure (capex), dividends and reducing net debt to the $35bn target, BP said it was left with surplus cash flow of $1.7bn in the first quarter. But it expects a cash flow deficit in the second quarter because of "the $1.2bn pre-tax annual Gulf of Mexico oil spill payment, further severance payments and a smaller improvement in realized refining margins relative to the quarter-to-date rise in our refining marker margin". For the whole of 2021, BP said it expects its divestment proceeds to reach $5bn-6bn, capex to come in at around $13bn and upstream production to be lower than 2020.

By Konstantin Rozhnov