Gushing profits allow BP to splurge cash on BHP deal

BP bets big on shale for its US comeback

BP more than doubled its earnings in the third quarter from a year ago, boosted by higher oil prices and quicker project delivery, enabling the UK energy major to fund its acquisition of miner BHP’s US shale assets all in cash.

Underlying replacement cost profits, BP’s definition of net income and the measure tracked most closely by analysts, were just over $3.8bn in the three months to September 30, from almost $1.9bn in the same period last year. This far surpassed analysts’ expectations of just under $2.8bn

“Operations are running well across BP and we’re bringing new, higher-margin barrels into production faster,” said chief executive Bob Dudley in a statement.

The company said its Thunder Horse Northwest expansion project in the Gulf of Mexico and the Western Flank B project in Australia began production in October ahead of schedule.

The company, which is returning to growth, after pulling back following the 2010 Deepwater Horizon oil spill and a multiyear energy industry downturn, announced in July it would buy BHP’s US shale assets for $10.5bn — its biggest deal in twenty years.

With the BHP deal set to close on Wednesday, BP said it would pay for the whole acquisition in cash should oil prices continue to stay at elevated levels, compared to an initial plan to fund half with equity.

BP, which had originally said it would divest assets to pay for the deal, said on Tuesday proceeds from $5-6bn of divestments will now be used to reduce net debt. Like peers such as France’s Total to Norway’s Equinor, which reported earnings last week, BP has emphasised financial discipline despite oil prices up 40 per cent higher than a year ago.

BP said earlier this month it was planning for a future of $60-65 a barrel, not $80 a barrel, in a sign of how the company was keeping spending in check. Still, this is higher than the $55 a barrel it had stressed last year.

Shareholders have been putting pressure on oil groups to cut costs, speed up project timelines and prioritise generating returns in the form of dividends and buybacks as majors return to profitability.

BP announced a dividend of 10.25 cents a share, after raising it for the first time in four years last quarter. BP has been nearing the end of its payments related to the Gulf of Mexico disaster. In the most recent quarter the company paid out $500m.

Gearing, the amount of debt a company has as a proportion of its equity capital, declined to 27.5 per cent at the end of the quarter from 27.8 per cent at the end of June.

Net debt was $39.2bn compared with $39.3bn at the end of June.

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