BP Plc. (NYSE:BP)
On February 2, 2016 BP released its fourth-quarter and full 2015 earning results. You can find the conference call transcript from Seeking Alpha here.
A Quick Financial Look At 2015:
Total revenues and other income
in $ billion
Cash and Cash equivalent
in $ billion
Underlying replacement cost profit
|Diluted EPS $||(2.12)||(1.08)||0.02||(1.91)||0.85||1.23|
Replacement Cost ("RC")
Operating Cash Flow
18.7 (excl. acquisition)
|BP Gross debt $ billion||53.168||53.168||57.405||57.104||57.731||52.854|
|BP Net Debt $ billion (Debt - cash)||27.158||27.158||25.646||24.830||25.123||22.646|
|Net debt ratio||21.60%||21.60%||20.0%||18.8%||18.4%||16.7%|
Oil & gas production, including Russia, in Mboe/d
|Dividend per shares per ADS holder $||2.40|| |
|Share outstanding in billion||3.069||3.069||3.058||3.053||3.042||3.033|
Total hydrocarbon average BP price
Gulf Of Mexico spill cost
|Reserves replacement ratio||61%||-||-||-||-||-|
BP released its 4Q'15 and full year 2015 earning results on February 2, 2016. The company posted a quarterly loss of $1.08 per share due to a rapid degradation of the oil and gas prices. Crude oil is again below $30 a barrel.
I was expecting a pretty dismal quarter, and the results matched my worst expectation. Mr. Robert W. Dudley, Group CEO, said it in the conference call:
Between September 2014 and the end of 2015, we saw the price of oil fall by over $60 per barrel. And as we enter 2016 the fundamentals that caused this are still in play, which means prices are likely to remain very volatile in the near term.
On a positive side, BP reduced its 2015 capital spending from its projected level of $22.9 billion to $18.7 billion whereas increasing total production by 5.4%.
The company expects to spend a little less on capital expenditures in 2016 and in 2017; somewhere between the $17 billion to $19 billion range.
On the negative side, BP is not expecting to be cash flow positive below $60 a barrel, which is a long way from the $29.71 a barrel reached today. It is quite evident that if oil and gas prices are not improving the situation for BP will deteriorate further, and we can be already certain that 2016 will be a tough year. The company anticipates a rebound by 2017.
The company renewed its commitment for the dividend, however, it is difficult to imagine BP keeping the dividend at the actual level, if the oil and gas prices are not improving significantly in the second half of 2016?
M. Brian Gilvary, CFO, said in the conference call:
As we laid out in October our principal objective is to re-establish a balance in our financial framework by 2017, where operating cash flow covers capital expenditure and the current dividend at an average Brent oil price of around $60 per barrel. We see this as consistent with sustaining the dividend at a level supported by the long term through cycle capability of our underlying businesses.
Thankfully, BP was able to put behind the Deepwater horizon oil spill "issue", on July 2015. However, the issue is not resolved totally and other costs will probably occur (liability for business economic loss claims difficult to evaluate now).
We also reached a milestone, a significant one in July, with the announcement of the agreements in principle with the United States government and five Gulf States to settle all federal and state claims arising from the Deepwater Horizon oil spill. This leaves us able to focus more clearly on the future.
The company is expecting further reductions of the upstream workforce of an additional 4,000 people.
Overall, the company is well managed with a long-term strategy. However, BP is not controlling the price of oil and gas, which are of a paramount importance and will affect the company's future results.
It is difficult to be optimistic for 2016, and it is highly probable that the company will show a struggling balance sheet throughout 2016, consequently, I expect further PPS weaknesses.
Despite this difficult environment, BP should be part of a well balanced portfolio, and investors should focus on accumulating the stock for the next rebound that will eventually come. This bear cycle is not different, and will certainly end. The question is when not if.
It is likely that BP will trade below the $29 range, if the oil prices cannot recover next quarter, above $40, which seems unlikely now? However, I think BP should be considered as a good opportunity from a long-term perspective and I recommend to accumulate.
Disclosure: I am/we are long BP.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.