British energy giant, BP plc reported second quarter 2013 adjusted earnings of 86 cents per American Depositary Share (ADS) on a replacement cost basis, excluding non-operating items. The results came below the Zacks Consensus Estimate of $1.09 owing to a drop in oil prices and a high underlying effective tax rate. Also, the quarterly figure decreased almost 23.2% from the year-earlier adjusted profit level of $1.12.
BP’s total revenue decreased 0.3% to $94.7 billion in the quarter from the year-ago level of approximately $95.0 billion.
Production and Price Realization
Total production of 2.241 MMBoe/d (million barrels of oil equivalent per day) was down 1.5% year over year, mainly on account of natural field decline across the portfolio.
The company sold oil for $94.92 per barrel in the second quarter (versus $100.89 in the year-earlier quarter) and natural gas for $5.37 per thousand cubic feet (versus $4.54 in the year-earlier quarter). Overall price realization rose 1.8% to $61.27 per Boe from the year-ago level of $60.17 per Boe.
Owing to depressed liquid realizations, higher cost and lower volume, the Upstream segment experienced a 2.6% year-over-year decrease in adjusted underlying profit.
The Downstream segment posted a profit of $1.2 billion in the quarter, up from the year-ago profit level of $1.1 billion. The result reflects the impact of robust performance by the fuels business along with an encouraging refining environment.
Refining Marker Margin increased to $19.1 per barrel from $18.9 in the second quarter of 2012. Total refinery throughput decreased to 1,708 thousand barrels per day (MB/d) from 2,282 MB/d in the year-earlier quarter. Refining availability saw a rise to 95.3% from 94.5% in the year-earlier quarter.
The Rosneft segment includes equity-accounted earnings from associates, representing BP’s 19.8% share in the former. The segment posted profit of $218.0 million in the reported quarter. Performance was muted by exchange losses and falling oil prices.
Capital Expenditure (Capex) and Asset Sale
In the reported quarter, BP’s total capex was $5.8 billion, all of which was organic. Disposal proceeds received in cash were $2.9 billion.
BP’s net debt was $18.2 billion at the end of the second quarter compared with almost $31.5 billion a year ago. Net debt-to-capitalization ratio was 12.3% compared with 21.7% in the second quarter of 2012.
Net cash provided by operating activities was close to $5.2 billion versus $6.1 billion in the year-ago quarter.
Even though the company remained active in its strategic development during the second quarter, it expects lower production in the upcoming quarter due to planned major turnaround activity and repairs in the high-margin North Sea, planned maintenance in Alaska and the continued impact of divestment. For the next quarter, the company expects refining margins to be subdued.
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 will definitely help BP in overcoming its near-term tribulations.
With the sale of its 50% interest in TNK-BP was finalized in the first half of 2013, BP has made its future position in Russian activities quite clear. BP has sold its interest to state-controlled rival Rosneft for $16.7 billion cash and a 12.84% stake in Rosneft. Subsequently, BP used $4.9 billion of the cash consideration to acquire another 5.66% of Rosneft shares from Rosneftegaz. As a result, BP overall now holds a 19.75% stake in Rosneft.
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 in the near term are adding to its woes.
U.K.’s second largest oil company by market value after Royal Dutch Shell plc is supported by a Zacks Rank #3, which is equivalent to a Hold rating for a period of one to three months. However, there are other stocks in the oil and gas sector – Rose Rock Midstream, L.P. and VOC Energy Trust – which hold a Zacks Rank #1 (Strong Buy) and are expected to perform better.