BP’s third-quarter earnings dropped by 41 per cent compared to a year ago after the UK energy major was hit by lower prices, an impairment charge and a fall in production because of maintenance and weather effects.
In the three months to September 30, underlying replacement cost profits — BP’s definition of net income and the measure tracked most closely by analysts — were at nearly $2.3bn versus $3.8bn in the same period in 2018. This is still ahead of analysts’ estimates of $1.7bn.
BP is the first of the so-called supermajors to report its earnings, with an energy price slump, weaker global demand and contracting chemicals industry margins all weighing on the oil sector.
Ahead of its third-quarter earnings release, BP announced it would take an impairment charge after the agreed sale of a parcel of US assets for a value lower than it had on its books. On Tuesday, BP said the charge would tally $2.6bn.
In August, BP announced the sale of its Alaskan business to Hilcorp for $5.6bn. It then said it would sell four packages of legacy gas assets from its US shale business, without disclosing the buyer or the price.
Norway’s Equinor last week said it had taken an impairment charge of nearly $2.8bn, with $2.2bn related to its onshore shale oil and gas assets in North America on “more cautious price assumptions”.
The sales come as part of a broad $10bn divestment programme to strengthen its balance sheet after a blockbuster deal for miner BHP’s US shale assets in 2018 — BP’s biggest acquisition in almost 20 years.
The company, which is also reassessing the carbon intensity of its portfolio, had announced asset sales worth $7.2bn by the end of the third quarter. BP expects to hit the $10bn mark by the end of 2019.
BP had also warned this month that oil and gas production would be hit by about 100,000 barrels of oil equivalent a day because of maintenance in some high-margin areas and because of weather effects, including Hurricane Barry in the US Gulf of Mexico.
On Tuesday, the company said oil and gas production for the quarter averaged 3.7m boe/d.
Operating cash flow stood at $6.5bn in the third quarter, excluding Gulf of Mexico oil spill payments.
Analysts have been focusing on BP’s debt levels since the BHP deal. Gearing — the ratio between debt and BP’s market value — was at nearly 32 per cent in the third quarter, one of the highest in the sector.
BP reiterated that it would remain above its target 20-30 per cent range through 2019, which some analysts have said could hinder its ability to return cash to shareholders in the form of increased dividends and buybacks.
BP announced a dividend of 10.25 cents per ordinary share