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BP doubles quarterly profits more than forecast as crude prices and production rise

BP expects fourth-quarter production to rise after agreeing to buy US shale oil and gas assets from BHP Billiton

Crude prices have risen nearly 17% this year

BP plc (LON:BP. raised its quarterly dividend by 2.5% as it doubled its net profit on the back of higher crude prices and production from the ramp-up of major projects.

The energy giant said underlying replacement cost profit – a measure of net profit –rose to US$3.8bn in the third quarter, up from US$1.9bn a year ago and ahead of analysts’ expectations of US$3.0bn.

It marked the highest quarterly net profit in more than five years, driven by a strong performance in the upstream business and Rosneft, the state-owned Russian oil firm BP holds a 19.75% stake in.  

Payments towards the 2010 Deepwater Horizon oil spill disaster in the Gulf of Mexico were $500mln on a post-tax basis. Operating cash flow for the quarter was flat at US$6.6bn, excluding the Gulf of Mexico payments. 

READ: BP second-quarter profit four-times higher than a year earlier, boosted by higher oil price

Production for the quarter came to 2.46mln barrels of oil per day, flat on the previous year on a reported basis but 6.8% higher on an underlying basis, boosted by the early delivery of expansion projects in the Gulf of Mexico and Australia.

BHP acquisition to boost production 

For the fourth quarter, BP estimates reported production to be higher than the previous three months after agreeing to buy US shale oil and gas assets from BHP Billiton plc (LON:BHP) for US$10.5bn in July.  The deal is expected to be completed at the end of October.

“This will transform our position in the US Lower 48 and we expect it to create significant value for BP. This progress all underpins our commitment to growing distributions for our shareholders,” said chief executive Bob Dudley.

BP said assuming oil prices remain firm, it now expects to fund the deal from available cash instead of issuing equity due to its “confidence in cash generation and continued cash discipline”.

In this event, proceeds from the $5-6 billion of divestments linked to the transaction will be used to reduce net debt.

Net debt at the end of September stood at US$39.2bn, compared to US$39.8bn a year ago. 

BP recommended a dividend of 10.25 cents a share for the quarter.

Oil prices have strengthened nearly 17% this year as US sanctions on Iran and tensions between Washington and Saudi Arabia restrict supply. However, crude is on course for its biggest monthly fall since mid-2016 due to concerns about the global economy.

'Here and now looks pretty rosy for BP', says analyst

Nicholas Hyett, equity analyst at Hargreaves Lansdown, said BP's announcement about funding the BHP deal out of existing cash is "very good news for investors and a serious vote of confidence by management.

He added: "Growth in renewable energy and the introduction of electric cars may be long-term worries for investors. But as profits gush and cash flows, the here and now looks pretty rosy for BP.”

Shares rose 3.8% to 555p in morning trading. 

Quick facts: BP PLC

Price: 500.4 GBX

Market: LSE
Market Cap: £101.62 billion

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