BP plc ( BP ) reported fourth quarter 2012 adjusted earnings of $1.25 per American Depositary Share (ADS) on a replacement cost basis, excluding non-operating items. The results comfortably beat our expectation of $1.05 thanks to improved downstream operation. However, the quarterly figure decreased almost 21% from the year-earlier adjusted profit level of $1.58 due to weak oil and gas production.
BP's total revenue increased 2.6% to $98.9 billion in the quarter from the year-ago level of $96.3 billion.
Full-year 2012 adjusted earnings came in at $5.56 per ADS on a replacement cost basis, ahead of the Zacks Consensus Estimate of $5.43 per ADS. Conversely, the full-year figure experienced a year-over-year downfall of 19.1%. Total revenue also decreased marginally by 0.7% to $383.6 billion in 2012 from the year-ago level of $386.5 billion.
Production and Price Realization
Total production of 2.290 MMBoe/d (million barrels of oil equivalent per day) was down 7.1% year over year, mainly due to field declines and divestments. However, major project start-ups, enhanced operation in Angola and higher output in other areas partly offset the downfall.
Full-year 2012 oil and gas production decreased 5.7% to 2.319 MMBoe/d from the year-earlier level of 2.460 MMBoe/d. However, excluding TNK-BP, total production was flat with the 2011 level.
The company sold oil for $100.00 per barrel in the fourth quarter (versus $101.84 in the year-earlier quarter) and natural gas for $5.03 per thousand cubic feet (versus $5.07 in the year-earlier quarter). Overall price realization dropped 1.7% to $62.38 per Boe from the year-ago level of $63.49 per Boe.
Owing to depressed price realizations, high cost and lower volume, the Upstream segment experienced a 26.4% year-over-year decrease in adjusted underlying profit.
The Downstream segment posted a profit of $1.4 billion in the quarter, up from the year-ago profit level of $0.8 billion. The result reflects the impact of robust performance in the fuels business along with an encouraging refining environment.
Refining Marker Margin increased to $13.17 per barrel from $9.10 in the fourth quarter of 2011. Total refinery throughput decreased to 2,350 thousand barrels per day (MB/d) from 2,454 MB/d in the year-earlier period. Refining availability saw a marginal drop to 95.0% from 95.3% in the year-earlier quarter.
BP split its Exploration and Production segment to form two new operating segments, Upstream and TNK-BP, with effect from Jan 1, 2012. The segment's net income decreased significantly by 77.3% year over year on an underlying replacement cost basis in the fourth quarter. This was mainly due to the termination of the equity accounting of TNK-BP income from Oct 22, 2012.
Segmental production decreased almost 1% to 1,011 thousand Boe/d (MBoe/d) from the year-earlier quarter level of 1,021 MBoe/d.
Capital Expenditure (Capex) and Asset Sale
In the reported quarter, BP's total capex was $7.1 billion. About $6.6 billion of the total capex was organic, which BP expects to be around $24 billion to $25 billion for 2013. The British giant now expects a series for organic capital expenditure between $24 billion and $27 billion per annum, starting next year through to the end of the decade.
BP is well on track with the planned $38 billion divestiture program of a number of its non-strategic assets through 2013. Disposal proceeds were $6.8 billion for the quarter and $11.4 billion for 2012. Total disposals amounted to $38 billion since the announcement of the divestiture program in 2010 and exclude the planned sale of its 50% interest in TNK-BP to Russia's state-operated oil company, OAO Rosneft.
BP's net debt was $27.5 billion at the end of the fourth quarter compared with $29.0 billion a year ago. Net debt-to-capitalization ratio was 18.7% compared with 20.5% in the fourth quarter of 2011.
Net cash provided by operating activities was $6.3 billion versus $5.0 billion in the year-ago quarter.
BP expects slightly higher sequential production in the upcoming quarter following the major project start-ups. However, it will be partly overshadowed by the planned asset sale ventures.
However, full-year production level is again expected to be lower than 2012 due to the impact of divestitures.
For 2013, the company expects refining margins to experience a downfall from the 2012 level due to turnaround activity. For the first quarter of 2013, the financial effect of the turnaround will likely be same as fourth quarter 2012.
The company's petrochemicals margins are also expected to remain weak during 2013.
BP remains busy in reshaping its portfolio through the divestment of smaller non-core properties to pay spill-related costs, while holding on to potential big resources, like Skarv. Hence, refocused upstream activities and a leading position in the Gulf region following the Macondo incident will definitely help BP in overcoming its near-term tribulations.
With the sale of its 50% interest in TNK-BP finalized in the reported quarter, BP has made its future position in Russian activities quite clear. BP has sold its interest to state-controlled rival Rosneft for $17.1 billion cash and a 12.84% stake in Rosneft.
With the start-up of production from the Skarv field in the Norwegian Sea as well as at its ultra-deep water PSVM project in block 31, off the Angolan coast, BP has certainly started the year on a positive note.
However, BP projected a lower production level for the year versus 2012. Although BP's strategy of offloading non-core upstream properties will prove beneficial over time, its far-reaching turnaround and maintenance ventures will continue in the upcoming quarter, further adding to its woes.
UK's second largest oil company by market value after Royal Dutch Shell plc ( RDS.A ), is supported by a Zacks Rank #3, which is equivalent to a Hold rating for a period of one to three months.
Among the integrated super majors, BP, ExxonMobil Corporation ( XOM ) and Chevron Corporation ( CVX ) beat their Zacks Consensus Estimates, but Shell came out with weaker-than-expected fourth-quarter 2012 earnings due to depressed North American fuel prices.