If BP’s half-year results seem a little bit “After the Lord Mayor’s Show” that’s probably because they come “After the Shale Oil Deal”.
Just last Friday, the FTSE 100 energy group announced a $10.5bn acquisition of BHP’s US shale assets — its largest deal since the Gulf of Mexico rig disaster in 2010 — and took the opportunity to throw in a first dividend increase in more than three years, and news of $5bn-$6bn of asset sales to fund share buybacks.
Chief executive Bob Dudley, said the shale purchase was “transformational” and “a major step” in reaching the company’s goal of boosting its oil drilling capacity.
All of which leaves the less exciting numbers to be stepped over and swept up this morning.
Even so, they still surpassed what some analysts had been expecting — and out-did rivals Royal Dutch Shell and ExxonMobil.
BP’s first quarter trading update in May had disclosed a 71 per cent rise in underlying replacement cost profit to $2.6bn — the company’s best performance since 2014 — thanks to rising oil prices and a 6 per cent rise in output. Today, however, the company said second quarter underlying replacement cost profit had reached $2.8bn — four times that reported for the same period in 2017.
BP put the further increase down to significantly higher earnings from its upstream exploration and production business, and from Rosneft. Analysts also noted that average oil prices in Q2 had been more than $10 ahead of where they were in Q1.
Upstream reported its strongest three-month performance since the third quarter of 2014 on both a replacement cost and underlying basis. Reported oil and gas production was 3.7 million barrels of oil equivalent a day in the quarter, 6 per cent higher than the first quarter of 2017. Upstream production, excluding Rosneft, was 9 per cent higher, supported by continued ramp up of major projects.
Gulf of Mexico oil spill payments in the quarter were $1.6bn on a pre-tax basis, including $1.2bn for the final payment relating to the 2012 Department of Justice settlement. This was in line with the numbers announced in the first quarter update.
BP also continued its share buyback programme in the quarter, buying another 18 million shares for a cost of $120 million. It even started to reducing its net debt, which had stood at $40bn in the first quarter: this came down by $0.7bn to $39.3bn making gearing 27.8 per cent, compared with 28.8 per cent a year ago. BP’s target range is 20-30 per cent.
Rising energy costs have had the opposite effect on British Gas owner, Centrica, though. This morning, it has reported that adjusted operating profit in it consumer business was down 20 per cent in the first half of 2018, as wholesale energy costs and extra spending during the extreme cold weather put pressure on margins. Consumer account numbers were down 1 per cent, but the rate of customer loss was slower than in 2017.
Centrica’s business division also suffered with adjusted operating profit down 57 per cent, and there was continued weakness in the North America operation.
As a result, the first half adjusted operating profit for the group was down 4 per cent to £782m.
However, full-year adjusted operating cash flow is currently expected to be higher than 2017, within the targeted £2.1-£2.3bn range, and net debt within the targeted £2.5-£3bn range. That means the all-important full year dividend is expected to be maintained at 12p.
But Centrica is still awaiting final government regulations on imposing a temporary “default tariff cap” on energy bills in the UK.
Standard Chartered, the emerging-markets-focused bank, has reported a stronger set of half-year results, with net profits up by almost a third to $1.6bn — thanks to restructuring and lower losses for bad loans.
Boss Bill Winters described the numbers as “encouraging progress” towards a medium-term target of earning a return on equity above 8 per cent. In the first six months of the year its return on equity was 6.7 per cent.
Revenues in the period increased 6 per cent to $7.7bn, in line with the bank’s guidance but slightly below analysts' expectations, as a strong performance in Hong Kong and Singapore was offset by “challenging conditions” in Africa and the Middle East. Provisions for bad loans halved to $293m and restructuring costs fell by a similar amount to $79m.
Performance was only held back by the increasing cost of digitising the bank’s operations.
StanChart’s common equity tier one ratio — a key measure of balance sheet strength — increased from 13.6 to 14.2 per cent.
Its shares were up slightly in Hong Kong trading at HK$76.60.
Today’s Lombard column focuses on estate agent Foxtons and the UK housing market:
When did you first realise London house prices had peaked? Almost everyone has a story. A couple of years ago, Lombard heard of parents who couldn’t afford homes in top schools’ catchment areas offering to pay residents’ council tax for them — to make it appear that they lived there. Now, property values have fallen so far that buying or renting is cheaper than that old council tax scam. But it seems some people have not noticed: in particular, fund managers at Capital Group, Russell Investments, UBS, Legal & General, Dimensional and Janus Henderson. Because they have recently increased their shareholdings in London-centric estate agent Foxtons.
Read the rest of today’s Lombard column here.
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