BP Says It’s Breaking Even After Debt Soared to a Record

BP Plc moved to calm investor concerns after debt rose to a record, saying lower oil-spill payments for the rest of the year and funds from asset sales will ease the burden.

“This year debt is going up exactly in line with payments going out for Macondo,” Chief Financial Officer Brian Gilvary said Tuesday by phone. “And it will come back down commensurately in the second half of the year when disposal proceeds come in.”

Net borrowings totaled $39.8 billion at the end of June, up almost $9 billion in a year, because of continuing payments for the 2010 Gulf of Mexico spill. While BP managed to cover its dividend and spending commitments with cash flow in the first half, it’ll need oil prices to rise or at least stay put to avoid further debt increases over the remainder of the year.

“The thing which is alleviating any concerns is the fact that we’re now cash break-even at below $50 a barrel,” Gilvary said. “In the first half of the year we were cash break-even at $47 a barrel.”

Several of Europe’s biggest oil companies have signaled a return to growth with earnings that exceeded analyst expectations. Royal Dutch Shell Plc generated almost as much cash from operations in the second quarter as it did when crude was above $100. Still, many producers are relying on disposals and scrip dividends — payouts in stock — to free up funds. At BP, the Macondo disaster forced Chief Executive Officer Bob Dudley to sell billions of dollars of assets to fund fines and compensation.

The stock rose 2.5 percent to 456.9 pence at 8:22 a.m. in London on Tuesday, reducing its decline this year to 10 percent. Benchmark Brent crude traded at $52.84 a barrel.

While gearing, or net debt to capital, climbed to 28.8 percent in the second quarter from 24.7 percent a year earlier, BP generated $4.9 billion in cash from operations, not far off the levels of 2012 and 2013, when oil was double the current price.

Buoyant Cash

“Cash flow was strong in the first half — organic cash flow exceeded organic capital expenditure and dividends paid,” Gilvary said in a statement.

Of the $4.5 billion to $5.5 billion BP expects to pay for the Gulf of Mexico accident this year, it paid $4.2 billion in the first half, and says asset sales will cover the cost.

See our TOPLive blog on BP’s earnings for real-time analysis.

  • Adjusted net income totaled $684 million, compared with $720 million a year earlier, beating the average analyst estimate of $518.4 million. A $753 million exploration write-off, flagged in June, weighed on the result.
  • Profit in the upstream, or exploration and production business, totaled $710 million, up from $29 million a year earlier.
  • Oil and gas output was 10 percent higher than a year earlier at 3.54 million barrels a day, in part reflecting a deal to buy into a large concession in Abu Dhabi.
  • The downstream division, which includes refining, marketing and trading, posted income of $1.41 billion, down from $1.51 billion a year earlier.
  • Organic capital spending in the first half was $7.9 billion. BP still expects the total spend for 2017 to come in between $15 billion and $17 billion.

About BloombergNEF

BloombergNEF (BNEF) is a strategic research provider covering global commodity markets and the disruptive technologies driving the transition to a low-carbon economy. Our expert coverage assesses pathways for the power, transport, industry, buildings and agriculture sectors to adapt to the energy transition. We help commodity trading, corporate strategy, finance and policy professionals navigate change and generate opportunities.
Sign up for our free monthly newsletter →

Want to learn how we help our clients put it all together? Contact us