Release date: 31 October 2017
It’s been a good quarter; more than any other quarter this year, we’ve seen how safe, reliable and efficient operations have led to strong performance in both the Upstream and the Downstream. We’ve come out with earnings of around $1.9 billion after tax.
At the start of 2017, we laid out a plan for investors over 20 quarters so, of course, we have 17 more in front of us to meet our objectives.
We’ve generated $6.6 billion of underlying operating cash in the third quarter and for the first nine months of 2017, we now have surplus cash on the organic frame.
We still have Deepwater Horizon liabilities to deal with on the inorganic side, but given that we are in a surplus cash position for this year and we’re now confident that we can balance the books just below $50 per barrel for 2018, today we’re announcing the start of a process of buying back shares to offset the scrip dividend dilution.
These are shares that have been issued in place of cash as part of the dividend payment.This is a pretty strong signal to the marketplace in terms of confidence in our future cash flow.
The oil price recovered a little through this quarter – but not that much. It averaged about $52 a barrel over the three months, up just over $2 a barrel from the previous quarter, so that has helped.
But, most of the gains have been about the business: having the right kit on stream when we need it led to strong underlying performance in both the Upstream and the Downstream. We’ve also seen the benefits of prioritising efficiency and costs over the last two years, as we’ve adjusted to this low oil price environment.
In other words, the bulk of improvements that we’re seeing are really of an underlying nature in the business rather than down to the environment itself. Obviously, where the oil price is today will give us a bit of a boost into the fourth quarter, but we haven’t really seen that in the 3Q earnings.
I don’t think so. The portfolio has shifted from 60% oil and 40% gas to a more even balance of 50% of each right now. And, we see our portfolio being around 60% gas by the middle of the next decade.
In terms of driving growth for the business, gas is good. Many of our new gas projects are linked to domestic gas prices on a fixed return basis.
A criticism we faced five years or so ago was that we didn’t have enough ‘long life cash bricks’ – in other words, assets or positions that drive cash over a number of years. So, now, these gas projects really enhance our portfolio at a time when we’ve seen plenty of volatility in the oil-side of our asset base.
Our gas projects give us a surety of income over a much longer period. Needless to say though, we still have oil projects coming on as we look out to 2021 and they’re important to ensure we still have oil price leverage inside the portfolio.
We’ve seen double-digit growth in our fuels marketing, that has certainly contributed to the Downstream’s $2.3 billion of earnings this quarter. Our brands are performing really well; we now have more than 1,000 sites with convenience partners, such as M&S in the UK and REWE in Germany.
Our retail sites are the public face of BP and we continue to project and grow the brand. We have some big challenges ahead of us as we think about how the world might move towards other types of products. We need to make sure we stay competitive and that we’re always able to deliver the products that the customer wants.
Elsewhere in the Downstream, both refining and petrochemicals delivered strong performances during the quarter, with our US refineries running at their highest availability in more than 10 years.
The weather patterns - and other natural disasters - we’ve seen around the world have been extraordinary, with typhoons in China, flooding in India, earthquakes in Mexico and a series of hurricanes in the Gulf of Mexico.
While causing some major devastation along parts of the Gulf coast, the impact of the hurricanes on BP’s operations themselves has been relatively marginal, compared with previous seasons.
We saw some production curtailed through the third quarter, which did affect our results. But, that impact is not as large as it could have been – mainly due to the location of our platforms in relation to the hurricane paths.
Our US headquarters in Houston bore the brunt of the storm damage though. We had three feet of water inside one of our Westlake buildings, forcing us to evacuate, and hundreds of BP families had to leave their homes.
The reaction of our people has been quite extraordinary though; they have pulled together to help one another, in some cases sharing homes or responding to assist others in the clean-up. Being able to close the books for the quarter with our people working from home is a great testament to the team over there.
I can only thank them for their response in the face of an incredibly difficult situation.
After seven years that have been dominated firstly by the Deepwater Horizon accident and its aftermath and then with the oil price correction, our big signal to the market this quarter is that we can offset the dilution from the scrip dividend going forward.
I think we’ve entered a ‘new normality’ – that doesn’t mean the environment is any easier and we still need to ensure our safe and reliable operations, but I think BP is back onto an even keel and into a regular rhythm.