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British energy giant BP plc (BP) reported first-quarter 2013 adjusted earnings of $1.32 per American Depositary Share (ADS) on a replacement cost basis, excluding non-operating items. The results comfortably beat our expectation of $1.05, thanks to improved downstream operation. However, the quarterly figure decreased almost 10.2% from the year-earlier adjusted profit level of $1.47 due to weak oil realization.
BP's total revenue decreased 0.8% to $94.1 billion in the quarter from the year-ago level of $94.9 billion.
Production and Price Realization
Total production of 2.330 MMBoe/d (million barrels of oil equivalent per day) was down 5% year over year, mainly on account of natural field decline across the portfolio.
The company sold oil for $103.11 per barrel in the first quarter (versus $108.13 in the year-earlier quarter) and natural gas for $5.52 per thousand cubic feet (versus $4.68 in the year-earlier quarter). Overall price realization rose 1.7% to $65.11 per Boe from the year-ago level of $64.02 per Boe.
Owing to depressed liquid realizations, higher cost and lower volume, the Upstream segment experienced a 20.3% year-over-year decrease in adjusted underlying profit.
The Downstream segment posted a profit of $1.6 billion in the quarter, up from the year-ago profit level of $0.9 billion. The result reflects the impact of robust performance in the fuels business along with an encouraging refining environment.
Refining Marker Margin increased to $17.4 per barrel from $14.6 in the first quarter of 2012. Total refinery throughput decreased to 2,065 thousand barrels per day (MB/d) from 2,270 MB/d in the year-earlier quarter. Refining availability saw a marginal drop to 95.1% from 94.9% in the year-earlier quarter.
BP completed the sale of its interest in TNK-BP to Russian integrated oil major, Rosneft on Mar 21, for a total consideration of $27.5 billion in cash and Rosneft shares. The gain on the disposal was $15.5 billion, of which $12.5 billion was recognised in the first quarter.
Capital Expenditure (Capex) and Asset Sale
In the reported quarter, BP's total capex was $17.7 billion. About $5.7 billion of the total capex was organic.
BP's net debt was $17.7 billion at the end of the first quarter compared with almost $31.0 billion a year ago. Net debt-to-capitalization ratio was 11.9% compared with 20.6% in the first quarter of 2012.
Net cash provided by operating activities was close to $4.0 billion versus $3.4 billion in the year-ago quarter.
Even though the company remained active in its strategic development during the first quarter, it expects lower production in the upcoming quarter due to normal seasonal turnaround activity, particularly high-margin production in the Gulf of Mexico and the North Sea, as well as higher costs. For the next quarter, the company expects refining margins to be subdued.
For 2013, the company expects refining margins to experience a downfall from the 2012 level due to turnaround activity. The company's petrochemicals' margins are also expected to remain weak during 2013.
BP remains busy in reshaping its portfolio through the divestment of smaller non-core properties to pay spill-related costs, while holding on to potential big resources, like Skarv. Hence, refocused upstream activities and a leading position in the Gulf region will definitely help BP in overcoming its near-term tribulations.
With the sale of its 50% interest in TNK-BP finalized in the reported quarter, BP has made its future position in Russian activities quite clear. BP has sold its interest to state-controlled rival Rosneft for $16.7 billion cash and a 12.84% stake in Rosneft. Subsequently, BP used $4.9 billion of the cash consideration to acquire another 5.66% of Rosneft shares from Rosneftegaz. As a result, BP overall now holds a 19.75% stake in Rosneft.
However, BP projected a lower production level for the year versus 2013. Although BP's strategy of offloading non-core upstream properties will prove beneficial over time, its far-reaching turnaround and maintenance ventures will continue in the upcoming quarter, further adding to its woes.
UK's second largest oil company by market value after Royal Dutch Shell plc (RDS.A), is supported by a Zacks Rank #3 (Hold).