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BP continue strong operating cash flow and strategic delivery

BP (LON:BP) has announced its third quarter 2019 Group results.

Highlights

• Financial results

  • Underlying replacement cost profit for the third quarter of 2019 was $2.3 billion, compared to $3.8 billion a year earlier. The result was impacted by significantly lower Upstream earnings, resulting from lower prices, maintenance and weather impacts.
  • A divestment-related, non-cash, non-operating after-tax charge of $2.6 billion resulted in a reported loss for the quarter of $0.7 billion.
  • Operating cash flow, excluding Gulf of Mexico oil spill payments, was $6.5 billion for the quarter, including a $0.1 billion working capital release (after adjusting for net inventory holding losses). Gulf of Mexico oil spill payments were $0.4 billion on a post-tax basis.
  • A dividend of 10.25 cents per share was announced for the quarter. Scrip dividend alternative suspended for the third quarter.

• Upstream operations impacted by maintenance and weather, Downstream strong

  • Reported oil and gas production for the quarter averaged 3.7 million barrels of oil equivalent a day, compared to 3.6 million barrels of oil equivalent a day a year earlier.
  • Underlying Upstream production, excluding Rosneft, was down 2.5% from a year earlier, reflecting maintenance across a number of regions and weather impacts in the US Gulf of Mexico.
  • The Downstream delivered strong operations with overall 96% Solomon availability for the quarter, and record crude was processed at the Whiting and Cherry Point refineries in the US.

• Divestments ahead of schedule, Downstream expansion in fast-growing markets

  • Following the agreement to sell all BP’s interests in Alaska to Hilcorp Energy, divestment transactions announced in 2019 totalled $7.2 billion at the end of the third quarter. BP expects this to reach around $10 billion by year end.
  • In the Downstream, BP continued its strategic delivery in new markets, announcing joint ventures in fuels marketing in India and electric vehicle charging in China.
  • In the quarter BP announced that it will deploy continuous measurement of methane emissions on all its future major operated oil and gas processing projects.

Bob Dudley – Group chief executive:

BP delivered strong operating cash flow and underlying earnings in a quarter that saw lower oil and gas prices and significant hurricane impacts. Our focus remains firmly on maintaining financial discipline and delivering safe and reliable operations throughout BP. We’re also continuing to advance our strategy, making strong progress with our divestment plans and building exciting new opportunities in fast-growing downstream markets in Asia.

Group headlines

Results

For the nine months, underlying replacement cost (RC) profit* was $7,423 million, compared with $9,246 million in 2018. Underlying RC profit is after adjusting RC profit* for a net charge for non-operating items* of $4,044 million and net favourable fair value accounting effects* of $140 million (both on a post-tax basis).

RC profit was $3,519 million for the nine months, compared with $7,269 million in 2018.

For the third quarter, underlying RC profit was $2,254 million, compared with $3,838 million in 2018. Underlying RC profit is after adjusting RC loss for a net charge for non-operating items of $2,931 million, primarily divestment-related impairment charges (see Note 3 and page 27), and net favourable fair value accounting effects of $326 million (both on a post-tax basis).

RC loss was $351 million for the third quarter, compared with a profit of $3,091 million in 2018.

BP’s reported result for the third quarter and nine months was a loss of $749 million and a profit of $4,007 million respectively, compared with a profit of $3,349 million and $8,617 million for the same periods in 2018.

See further information on pages 3, 27 and 28.

Depreciation, depletion and amortization

The charge for depreciation, depletion and amortization was $4.3 billion in the quarter and $13.3 billion in the nine months. In the same periods in 2018 it was $3.7 billion and $11.5 billion respectively (prior to the implementation of IFRS 16). In 2019, we expect the full-year charge to be around $18 billion.

Effective tax rate

The effective tax rate (ETR) on RC profit or loss* for the third quarter and nine months was 168% and 49% respectively, compared with 38% and 41% for the same periods in 2018. Adjusting for non-operating items and fair value accounting effects, the underlying ETR* for the third quarter and nine months was 40% and 38% respectively, compared with 36% and 38% for the same periods a year ago. The higher underlying ETR for the third quarter reflects deferred tax charges due to foreign exchange impacts. In the current environment the underlying ETR in 2019 is expected to be around 40%. ETR on RC profit or loss and underlying ETR are non-GAAP measures.

Dividend

BP today announced a quarterly dividend of 10.25 cents per ordinary share ($0.615 per ADS), which is expected to be paid on 20 December 2019. The corresponding amount in sterling will be announced on 9 December 2019. BP also announced that the board has suspended the scrip dividend alternative in respect of the third quarter 2019 dividend. Dividend reinvestment plans will be introduced effective from this third quarter dividend. See page 23 for further information.

Share buybacks

BP repurchased 34 million ordinary shares at a cost of $215 million, including fees and stamp duty, during the third quarter of 2019. For the nine months, BP repurchased 52 million ordinary shares at a cost of $340 million, including fees and stamp duty. Our share buyback programme is expected to fully offset the impact of scrip dilution since the third quarter 2017 by the end of 2019.

Operating cash flow*

Operating cash flow excluding Gulf of Mexico oil spill payments* was $6.5 billion for the third quarter and $20.6 billion for the nine months. These amounts include a working capital* release of $0.1 billion in the third quarter and $0.6 billion in the nine months, after adjusting for net inventory holding losses or gains* and working capital effects of the Gulf of Mexico oil spill. The comparable amounts for the same periods in 2018 were $6.6 billion and $19.0 billion (prior to the implementation of IFRS 16).

Operating cash flow as reported in the group cash flow statement was $6.1 billion for the third quarter and $18.2 billion for the nine months. These amounts include a working capital release of $141 million and build of $2.6 billion respectively. The comparable amounts for the same periods in 2018 were $6.1 billion and $16.0 billion (prior to the implementation of IFRS 16).

See page 30 and Glossary for further information on Gulf of Mexico oil spill cash flows and on working capital.

Capital expenditure*

Organic capital expenditure* for the third quarter and nine months was $3.9 billion and $11.3 billion respectively. We reported $3.7 billion and $10.7 billion for the same periods in 2018 (prior to the implementation of IFRS 16).

Inorganic capital expenditure* for the third quarter and nine months was $0.1 billion and $4.0 billion respectively, including $3.5 billion for the nine months relating to the BHP acquisition, compared with $0.7 billion and $1.5 billion for the same periods in 2018.

Organic capital expenditure and inorganic capital expenditure are non-GAAP measures. See page 26 for further information.

Divestment and other proceeds

Divestment proceeds* were $0.7 billion for the third quarter and $1.4 billion for the nine months, compared with $0.1 billion and $0.4 billion for the same periods in 2018.

Gearing*

Net debt* at 30 September 2019 was $46.5 billion, compared with $38.5 billion a year ago. Gearing at 30 September 2019 was 31.7%, compared with 27.1% a year ago. Net debt and gearing are non-GAAP measures. See page 23 for more information.

Brian Gilvary – Chief financial officer:

BP’s third quarter results demonstrate the resilience of our financial performance, even at lower prices. Net debt stayed flat in the quarter, though gearing rose slightly following a reduction in equity as a result of divestment-related impairment charges. With growing free cash flow and receipt of disposal proceeds, we continue to expect net debt to trend down over time. In addition, the underlying effective tax rate for the quarter was lower than previously indicated, mainly due to higher-than-expected estimated Rosneft earnings and a lower-than-expected impact from the Upstream profit mix.