The first oil giant to report its first quarter earnings was BP Plc on Tuesday which posted a better than expected performance after the group cut costs as it navigates through a period of the lowest crude oil prices in over 10 years.
BP posted an underlying replacement cost profit in Q1 of $532 million, growing from $196 in the final quarter of 2015 however dropping from $2.6 billion compared to the same period in 2015. Analysts had estimated a loss of $244.9 million during the quarter.
Bob Dudley, Chief Executive of BP group said:
“Despite the challenging environment, we are driving towards our near-term goal of rebalancing BP’s cash flows. Operational performance is strong and our work to reset costs has considerable momentum and is delivering results. Furthermore, development of our next wave of material upstream projects is well on track.”
Dudley did add that market fundamentals such as robust demand and weak supply growth were likely to cause prices to rebalance near the end of the year.
If prices don’t rise as expected BP also made it clear that it was able to make larger cuts to its expenditure with investments dropping as low as $15 billion next year from $17 billion this year.
Next year providing oil reaches $50 to $55 per barrel the company expects to balance its cash flow with shareholder dividends which it is currently attempting to maintain at the same level.
The average price of Brent crude dropped to its lowest point in 12 years during Q1. As Brent reached as low as $28 per barrel in January it caused production earnings at BP to drop although it did make crude cheaper for its refineries.
Following the Deepwater Horizon incident the business sold assets and cut costs. Earlier in April BP’s settlement for the oil spill was agreed at $20.8 billion which the business said allowed it to move forward and analysts said “removed uncertainties” for the group.
Brendan Warn, the Managing Director of BMO Capital Markets said:
“The company is showing it is restructuring and reducing costs to adjust to oil prices and that’s pleasing. Higher-than-expected downstream earnings helped it beat estimates this quarter.”
BP’s results are being watched as an indicator of other oil companies which will release results in the coming days. Total SA will report Q1 results on Wednesday whilst Exxon Mobil Corp. and Chevron Corp. will state their results on April 29 and Royal Dutch Shell Plc on 4th May.