BP's Shares Plunge as Quarterly Profit Halves

BP's (BP) third-quarter profit almost halved on weaker oil prices and a lower refining margin, with the fall contained by  tax credits and continued cost cutting.

The company's shares were recently down 2.9% at 469.90 pence, as net debt swelled and cash flows shriveled, even though the headline earnings figure beat the consensus expectation.

"We continue to make good progress in adapting to the challenging price and margin environment," said BP CFO Brian Gilvary in a statement. "We remain on track to rebalance organic cash flows next year at $50 to $55 a barrel, underpinned by continued strong operating reliability and momentum in resetting costs and capital spending."

BP said underlying replacement cost profit, which excludes inventory valuation effects, fell to $933 million in the third quarter, down from $1.82 billion a year ago. The consensus forecast had been for a $600 million profit. Earnings per share for the quarter was just under 5 cents, also well ahead of estimates. BP held the dividend unchanged at 10 cents a share.

BP's earnings decline continues a grim quarterly reporting season for major European oil companies, which have seen profit fall along with the price of crude. Brent crude traded at an average of $45.90 in the third quarter, marginally higher than the previous quarter's price but down on the average of $50.50 in the third quarter of 2015.

Shell on Tuesday presented the only bright spot in the current round of results after it posted an 18% increase in quarterly earnings after output was boosted by its acquisition of BG.

BP's upstream division posted underlying profit of $224 million, higher than the second quarter's $29 million but well down on the $823 million of profit in the same quarter last year. Quarterly production was 2,110 million barrels of oil equivalent, down 5.9% on the same period last year because of maintenance issues and outages due to storms in the Gulf of Mexico.

Downstream operations made profit of $1.4 billion, down from $1.5 billion in the second quarter and $2.3 billion in the third quarter of last year.

BP said it expects fourth-quarter production to be slightly higher than the current quarter but warned of ongoing pressure on refining margins  in its upstream operations.  

The weak upstream results left operating cash flow at $1.8 billion, including outflows of $2.3 billion related to the Macondo disaster, down from $3.95 billion a year ago, and below the consensus of $3.5 billion.  

The operating results were "impacted by higher exploration writeoffs and some one-off charges. Russia was also weak relative to expectations," noted Goldman Sachs analysts.

BP said Tuesday it is forecasting organic capital spending of $16 billion for the current year, down from earlier guidance of $17 billion to $19 billion.

Net debt at Sept. 30 was $32.4 billion, up from $25.6 billion a year ago, leaving BP with a net debt to equity ratio of 25.9%, up from 20% at the end of the third quarter last year.

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