Quarterly profits at oil giant BP PLC (LON:BP.) more than doubled to US$3.8bn from the US$1.86bn reported in the corresponding period a year ago, as a stronger oil price and new production combined to boost cashflow.
Revenue in the third quarter, which runs from July to September rang in at US$80bn, during a period in which the price of a barrel of Brent crude averaged US$77.
READ: BP doubles quarterly profits more than forecast as crude prices and production rise
That’s up significantly on the corresponding price for a year earlier, a result partly of the continuing strength in the global economy, but more specifically because the US is attempting to remove Iranian output from the market in an effort to put pressure on the Iranian government to end its nuclear programme.
The Brent price hit US$86 earlier in the month, which should bode well for BP’s final quarter, as it continues to look for growth.
During 2018, BP has brought on five major new projects in the Gulf of Mexico, Azerbaijan, Australia, Russia and Egypt. And production growth will continue into the current quarter as assets recently acquired from BHP Billiton (LON:BLT) also come on stream.
Positivity about these new assets was part of the reason BP’s shares rose upwards of 3% in morning trade after the results came out.
"Since we announced the BHP transaction, oil prices have firmed to levels significantly above the acquisition assumptions,” said BP’s chief financial officer Gavin Gray.
“While oil prices remain at these levels, we expect to finance the transaction fully using cash.”
That was read by analysts in the market as a clear indication of BP’s rude financial health, because it had been thought that a share issue and some divestments would be required to pay for the BHP assets.
Now, the share issue is off the table, and any cash generated by the planned divestments will now be used to pay down debt.
Profit jump eye-catching
Nicholas Hyett, an analyst at broker Hargreaves Lansdown, summed up the mood in the market fairly well.
“The profit jump is eye catching, but the cash flows are more important,” he said.
“Net debt has fallen again this quarter and, assuming all is well in global oil markets, BP now feels able to fund the BHP deal out of existing cash rather than issuing new shares. That’s very good news for investors and a serious vote of confidence by management. Falling costs associated with the Gulf of Mexico oil spill are helping here, although 8 years on the disaster still cost BP US$500 mln in the third quarter.”