BP Shows Big Oil Is Still Suffering With Earnings Miss

(Bloomberg) -- BP Plc showed that Big Oil has barely begun to heal the wounds from last year’s historic slump, posting earnings that fell short of expectations on weak fuel sales, refining margins and gas trading.

The Western world’s largest oil and gas producers were supposed to be sailing into fourth-quarter earnings season with a tailwind from stronger commodity prices, but their results so far show the enduring impact of the Covid-19 pandemic.

BP eked out a modest profit, but it was still just a fraction of typical pre-pandemic levels and cash flow was down. Chevron Corp., the only other major so far to post its results for the period, reported a surprise loss due to weak fuel demand.

Shares of the company fell 3% to 259 pence at 8 a.m. in London.

“Tough quarter, clearly, at the end of a really tough year,” BP Chief Executive Officer Bernard Looney said in a Bloomberg TV interview on Tuesday. “The full-year results were hit hard by Covid.”

BP’s fourth-quarter adjusted net income was $115 million, down from $2.57 billion a year earlier and only a slight improvement from the preceding three months. The company fell short of the average analyst estimate of $440 million.

Operating cash flow excluding Gulf of Mexico spill payments, a key figure for investors as it determines the sustainability of dividend payments and capital expenditure, was much weaker. It fell to $2.4 billion in the period, down from $5.4 billion in the third quarter.

With crude prices and refining margins buoyed by the roll-out of Covid-19 vaccines and the prospect of an economic rebound, investors had been expecting a grim year to end on a more positive note. Some optimism had already been priced in, with shares of BP and its peers posting double-digit percentage gains since the end of the third quarter of 2020.

Yet refining weighed down the company’s performance. BP said the business was affected “significantly” by lower volumes as a result of the pandemic, with continuing pressure on margins. Gas marketing and trading was also weak.

“Weather was warmer in the United States than we thought and colder in Asia than we thought, and that made for some difficult trading conditions,” Looney said.

One bright spot was net debt, which was down $1.4 billion from the preceding quarter to $39 billion at year-end. Still, BP said it expects the figure to increase in the first half of 2021, driven by payments related to employee severance, the annual Gulf of Mexico oil spill compensation, and the completion of the offshore wind joint venture with Equinor ASA. The ratio of net debt to equity was 31%.

BP remains on track to meet its net-debt target of $35 billion between the fourth quarter of 2021 and first quarter of 2022, “which will trigger the start of share buybacks, subject to maintaining a strong investment grade credit rating,” Chief Financial Officer Murray Auchincloss said in a statement.

Exxon Mobil Corp. will publish its fourth-quarter earnings at 7:30 a.m. New York time.

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