BP Plc Group results - First quarter 2020
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First Quarter Results
Bernard Looney - Chief executive officer:
This extraordinary time for the world demands extraordinary responses. And thankfully we are seeing that just about everywhere we look around the world. Our industry has been hit by supply and demand shocks on a scale never seen before, but that is no excuse to turn inward. BP, like many other companies, is stepping up and extending a helping hand to those in need. We do it not because it is expected of us - but because we want to. That is consistent with our purpose.
We are focusing our efforts on protecting our people, supporting our communities and strengthening our finances. I am incredibly proud of the work that our people are doing in all three areas, particularly our colleagues in operations - from rigs to retail and everywhere in between - who are continuing to deliver energy and provide goods in the most difficult of circumstances.
At the same time, we are taking decisive actions to strengthen our finances - reinforcing liquidity, rapidly reducing spending and costs, driving our cash balance point lower.
We are determined to perform with purpose and remain committed to delivering our net zero ambition.
First quarter 2020 results
- Underlying replacement cost profit for the first quarter was $0.8 billion, compared with $2.4 billion for the same period a year earlier. The result reflected lower prices, demand destruction in the Downstream particularly in March, a lower estimated result from Rosneft and a lower contribution from oil trading. It was also impacted by $0.2 billion non-cash underlying foreign exchange (FX) effects in other businesses and corporate, including FX translation impacts of finance debt in the BP Bunge Bioenergia joint venture.
- Replacement cost loss for the first quarter was $0.6 billion, compared with a profit of $2.1 billion for the same period a year earlier, including a $1.4 billion net adverse impact of non-operating items and fair value accounting effects.
- Inventory holding losses of $3.7 billion, as a result of the dramatic drop in oil prices at the quarter end, were the main driver of the reported historical cost loss of $4.4 billion.
- Operating cash flow for the first quarter, excluding Gulf of Mexico oil spill payments, was $1.2 billion, including a $3.7 billion working capital build (after adjusting for net inventory holding losses) driven by higher Downstream product balances and trading mark-to-market receivable balances at the end of the quarter. Gulf of Mexico oil spill payments in the quarter were $0.3 billion on a post-tax basis.
- Receipts from divestments and other proceeds were $0.7 billion in the first quarter.
- Net debt at the end of the quarter was $51.4 billion, $6.0 billion higher than a quarter earlier. Also reflecting lower equity including FX impacts, gearing at quarter end was 36.2%.
- At the end of the quarter BP had around $32 billion of liquidity available.
- A dividend of 10.5 cents per share was announced for the quarter.
- The economic impact of the COVID-19 pandemic coupled with pre-existing supply and demand factors have resulted in an exceptionally challenged commodity environment. Product demand has sharply reduced, notably for mobility, contributing sharp falls in refining margins and utilization. The resulting reduction in demand for crude oil has begun to put severe pressure on storage and logistics, with a substantial effect on prices and has promoted volatility. In April, OPEC and its partners agreed to significant supply cuts that are expected to help reduce the imbalance but are unlikely to prevent material supply shut ins by oil producers in the near-term, some of which may be difficult to reverse. Challenges in gas markets, following significant growth in supply over recent years, have been compounded by the pandemic, lowering LNG demand.
- In March, Brent crude marker prices and BP's refining marker margin touched levels not seen for well over a decade, while Henry Hub gas price hit multi-year lows and prices and margins have continued to remain depressed.
- Looking forward, there remains an exceptional level of uncertainty regarding the near-term outlook for prices and product demand, particularly while many economies remain under lockdown. There is the risk of more sustained consequences depending on the efforts of governments and the public and private sectors to manage the health, economic and financial stability effects of the pandemic.
- Upstream second-quarter reported production is expected to be lower compared to the first quarter. There are significant uncertainties with regard to the implementation of OPEC+ restrictions, price impacts on entitlement volumes, divestments, market restrictions given lack of demand for oil and COVID-19 operational impacts.
- In Downstream, material impacts from COVID-19 are expected in the second quarter. Product demand in fuels marketing is expected to be significantly lower in BP's key European and North America businesses. In refining, reduced utilization is expected due to the overall product demand declines, as well as significantly lower refining margins. In addition, a lower level of North American heavy crude discounts is expected.
- During the second quarter BP also expects to make the annual payment of around $1.2 billion relating to the Gulf of Mexico spill settlement.
- Gearing is expected to remain above the 20 to 30% target range into 2021. It is expected to trend down over time reflecting receipt of divestment proceeds and reversal of first quarter working capital impacts, and as BP's financial interventions take effect.
- BP's future financial performance, including cash flows, net debt and gearing, will be impacted by the extent and duration of the current market conditions and the effectiveness of the actions that it and others take, including its financial interventions. It is difficult to predict when current supply and demand imbalances will be resolved and what the ultimate impact of COVID-19 will be.