) first quarter 2012 earnings dropped 13.6% annually mainly due to
the lackluster performance by its downstream business accompanied
by the lower production volume. The British major reported
quarterly earnings of $1.52 per American Depositary Share (
) on a replacement cost basis, excluding non-operating items.
Results were below the Zacks Consensus Estimate of $1.65 as well as
the year-earlier adjusted profit level of $1.76.
However, BP's total revenue soared 9.3% year over year to $96.7
billion in the quarter, handily beating the Zacks Consensus
Estimate of $89.9 billion, thanks to the higher oil and natural gas
Price Realization and Production
The company sold oil for $108.13 per barrel in the first quarter
(versus $93.93 in the year-earlier quarter) and natural gas for
$4.68 per thousand cubic feet (versus $4.21 a year ago). Despite
the improved price realizations, the 'Upstream' segment experienced
a 5.9% year-over-year decrease in profit, as total production of
2.5 MMBoe/d (million barrels of oil equivalent per day) was down 6%
year over year.
The volume loss was mainly due to production decline in the Gulf
of Mexico (GoM), which was hit by the drilling moratorium in 2010
and 2011. However, the ramp-up of production in Angola and new
production from India partly offset the downfall.
Refining and Marketing (R&M)
The R&M business segment posted a profit of $924 million,
down substantially from the year-ago profit level of $2.2 billion.
The quarterly result reflects the effect of the lower contributions
from the fuels and petrochemicals operations.
However, refining Marker Margin increased to $11.60 per barrel
from $11.02 in the first quarter of 2011. Total refinery throughput
increased marginally to 2,270 thousand barrels per day (MB/d) from
2,269 MB/d in the year-earlier period. Refining availability
increased to 94.9% from 93.9% in the year-earlier quarter.
The company separated its Exploration and Production segment to
form two new operating segments, Upstream and TNK-BP, with effect
from January 1, 2012. The segment registered a 2.7% year-over-year
improvement in its net income on an underlying replacement cost
basis owing to the higher realizations. This was partly offset by
cost inflation and increased production taxes.
Segmental production climbed 4% to 1,019 thousand Boe/d (MBoe/d)
from the year-earlier quarter level of 980 MBoe/d, largely
attributable to the enhancement of recent new developments.
Capital Expenditure (Capex) and Asset Sale
In the reported quarter, BP's total capex was $5.6 billion as
against $4.0 billion in the year-earlier quarter. Notably, almost
all of the total capex was organic.
BP is well on track with the planned $38 billion divestiture
program of a number of its non-strategic assets over the period of
2010-2013. Disposal proceeds for the quarter were $1.3 billion with
total disposals amounted to $23 billion since the announcement of
the divestiture program in 2010.
The company's net debt was $31.2 billion at the end of the first
quarter compared with $27.5 billion a year ago. Net
debt-to-capitalization ratio was 20.7% compared with 21.0% in the
first quarter of 2011.
Net cash provided by operating activities was $3.4 billion
versus $2.4 billion in the year-ago quarter.
Even though the company remains active in its strategic
development during the first quarter, it expects lower production
in the upcoming quarter due to normal seasonal turnaround activity,
particularly high-margin production in the Gulf of Mexico at
Atlantis, Mad Dog and Holstein, as well as higher costs.
For the next quarter, the company expects refining margins to
improve. However, the company remains apprehensive about its fuels
marketing volumes and petrochemicals margins given the complex
Management remains positive on the company's growth profile and
looks forward to recovery as well as consolidation in order to
reduce operational risk or oil spill-related assignments. BP
remains focused on a string of upstream activities in high margin
areas like the GoM, Angola, the North Sea, Brazil, Australia and
India that bode well for its future growth. We believe that its new
strategy of active portfolio management, higher exploration
activity with additional precautionary actions and refining and
marketing repositioning will create value for shareholders.
While the GoM tragedy has affected BP's share performance, we
expect it to recover and hence, stick to our long-term Neutral
recommendation. BP holds a Zacks #3 Rank (short-term 'Hold'
BP's major competitor,
) reported first quarter 2012 earnings last week. Exxon posted
disappointing first quarter results on lower production volume. The
company missed the Zacks Consensus Estimate and the year-ago profit
level by 7%.
BP PLC (
): Free Stock Analysis Report
EXXON MOBIL CRP (
): Free Stock Analysis Report
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