BP Tops on Better Cost Control

BP plc (BP) 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) and Chevron (CVX), 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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