Despite returning a modest profit in the third quarter of 2020, the oil major warned a 'volatile and challenging' market persists amid coronavirus uncertainty
BP posted a narrow profit for the third quarter of 2020, amid gradually-improving global energy demand and a modest recovery in crude oil prices.
The UK oil major reported an underlying replacement cost profit of $86m, which returned it to profitability after a dire second quarter in which it incurred a $6.7bn loss. It compares to a $2.3bn profit in third quarter of 2019.
An absence of “significant exploration write-offs” contributed to the gains, the company said, although this was partially offset by “extremely weak” refining margins and “significantly lower” returns from its oil-trading business.
BP warns of uncertainty to come despite returning to profit in third quarter of 2020
BP has embarked on a major strategic overhaul since February, as it aims to “reimagine” itself as an integrated energy company on the road to achieving a net-zero-emissions footprint by 2050.
The shift includes a bigger focus on renewable energy, scaling back its exploration and production activities for hydrocarbons, and streamlining its operations to create a more agile company.
In June, it announced 10,000 jobs would be cut across the business before the end of the year, mostly from senior management positions, as part of this restructuring drive.
In line with the industry-wide trend amid coronavirus, capital spending plans for the year have been revised downwards to $12bn. BP said $9.1bn has been spent so far in 2020.
Despite a concerted effort to convince investors of the merits of this new approach, the oil group’s share price has more than halved since the start of the year – exacerbated by the negative impact of coronavirus on oil markets more generally, amid retreating fuel demand during lockdowns and low crude prices.
The company warned the ongoing effects of Covid-19 “continue to create a volatile and challenging trading environment”, although was more upbeat about recovering oil demand, particularly in Asia.
BP chief executive Bernard Looney said: “Having set out our new strategy in detail, our priority is execution and, despite a challenging environment, we are doing just that. Major projects are coming online, our consumer-facing businesses are really delivering and we remain firmly focused on cost and capital discipline.
“Importantly, net debt continues to fall. We are firmly committed to our updated financial frame, including the dividend – the first call on our funds.”
Net debt on track to fall to $35bn target
For the first time since the Deepwater Horizon disaster in 2010, BP halved its second-quarter dividend payment to 5.25 cents per share as part of wider cost-cutting efforts – and has maintained this level for the third quarter.
Net debt during the three-month period fell to around $40bn, said BP’s chief financial officer Murray Auchincloss, and is expected to fall further during the fourth quarter of 2020. “We are confident in moving towards our $35bn net-debt target, supported by value accretive divestments,” he added.
During the third quarter, BP made its first foray into offshore wind, through a joint venture agreement with Norway’s Equinor to develop two projects in the US. It also began production at the Ghazeer natural gas field in Oman, as well as its Atlantis Phase 3 project in the US Gulf of Mexico.
It is the first of the oil majors to publish its third-quarter results, with updates expected from the likes of Royal Dutch Shell, Chevron and ExxonMobil later this week.