BP Beats Forecasts To Return To Small Profit In Q3

BP (NYSE: BP) avoided a second consecutive loss and beat analyst estimates as it reported on Tuesday a small profit for the third quarter after oil prices stabilized at around $40 a barrel from the slump in Q2.

The UK-based supermajor, which is in the process of slashing 10,000 jobs, reported an underlying replacement cost profit—its proxy for net profit—of US$86 million for Q3, compared with a loss of US$6.7 billion for the second quarter of 2020 and US$2.3 billion profit for the third quarter of 2019.

Analysts had expected BP to post a loss of US$347 million for the third quarter of 2020.

BP also slightly reduced its net debt to US$40.4 billion at the end of Q3.

Between July and September, the company’s earnings benefitted from the absence of significant exploration write-offs and recovering oil and gas prices and demand. Yet, BP’s trading division didn’t perform as well as it did in Q2 when oil prices were extremely volatile.

When it reported Q2 figures in August, BP halved its dividend for the first time since the Deepwater Horizon disaster in 2010 and incurred massive write-offs due to slashed oil price expectations for the medium to long term. BP said back then that “Oil trading delivered an exceptionally strong result” during Q2.

In Q3, BP had a “significantly lower oil trading result,” it said in a statement.

The downstream continues to be challenged, and BP expects “continued pressure on industry refining margins and for marketing volumes to remain impacted by COVID-19 restrictions,” CFO Murray Auchincloss said on the earnings call.

BP’s cash balance point was around $42 a barrel Brent in the third quarter, despite weak refining margins, low gas prices, and reduced product demand Auchincloss said.

“Funding the dividend remains our first priority and we are confident in moving towards our $35 billion net debt target, supported by value accretive divestments,” he added.

BP’s small Q3 profit “may well be an improvement on the $6.7bn replacement cost loss posted in Q2 meaning the company has managed to avoid the first quarterly back to back loss in more than a decade, but it can’t disguise the challenges facing the industry,” Michael Hewson, chief market analyst at CMC Markets, said, commenting on the results.

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