BP Tops on Better Cost Control

BP plc (BP - Snapshot Report) reported its third quarter 2009 results of $1.71 per ADS (American Depositary Share), beating the Zacks Consensus Estimate of $1.14 on the back of stronger cost controls and increased upstream volumes. However, in comparison with the year-earlier results, earnings fell approximately 34% on lower oil prices.

BP’s strong performance sets the stage for earnings releases by ExxonMobil (XOM - Analyst Report) and Chevron (CVX - Analyst Report), which are scheduled to report their results on Thursday and Friday this week, respectively.

BP expects its capex budget to be $20 billion for the year. The company’s attractive dividend (currently yielding around 6%) remains unchanged from the year-ago level. We believe that BP’s dividend is safe with the recent uptrend in oil prices.

Net cash provided by operating activities for the quarter was $8.1 billion compared with $14.9 billion a year ago. Net debt at the end of the quarter was $26.3 billion, representing net debt-to-capitalization ratio of 21% (compared with 17% a year ago).

Total production for the quarter jumped 7% year over year to 3.92 MMboe/d (million barrels of oil equivalent per day, 65% liquid), reflecting strong operating performance in the U.S. If we adjust for entitlement impacts and OPEC quota restrictions, the increase would still be 7%.

During the quarter, BP announced a giant discovery at the Tiber prospect in the deepwater US Gulf of Mexico. The company is the operator of this project and has 62% working interest.

Average realization for liquids and natural gas were $62.77 per barrel and $2.81 per Mcf, down 44% and 57%, respectively, from the year-earlier level.

In the refining and marketing business, adjusted earnings were more than 41% below the year-earlier level as the improved cost and operational momentum was offset by a weak margin environment. Total throughput increased 6.6%, while refining availability increased to 94.3% from 87.7% in the third quarter of 2008. The overall weak refining, marketing and petrochemical margin environment is expected to continue.

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