Here’s What To Expect From BP’s 4Q’17 Earnings Results
BP Plc. (NYSE:BP), the European integrated energy company, is set to post its financial numbers for the December quarter and full year 2017 on 6th February 2018((BP To Announce December Quarter 2017 Results, www.bp.com)). Despite the strong recovery in commodity prices, the market expects the company’s top-line to remain subdued for the December quarter. However, the oil and gas major is likely to experience a notable improvement in its annual revenue as well as earnings. Besides, BP spun off its midstream business into a master limited partnership during the year, which enabled it to raise about $700 million through its IPO in the fourth quarter of this year. While the new entity will manage BP’s pipeline operations going forward, the company aims to deliver on its upstream expansion plans, while restricting its capital investment over the next few years, in order to enhance its shareholder value. We have a price estimate of $41 per share for BP’s stock, which is in line with the current market price.
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Key Trends Witnessed In 4Q’17
- Due to the extension of the Organization of Petroleum Exporting Countries’ (OPEC) production cuts in the fourth quarter, commodity prices witnessed a sharp rise. The WTI crude oil prices averaged at $55.26 per barrel for the December quarter, notably higher than the $48.18 per barrel of the previous quarter. For the full year 2017, WTI oil prices stood at $50.80 per barrel, 17% higher than 2016. Thus, we expect this higher price realization to boost BP’s upstream revenue for the quarter as well as the full year 2017.
- According to the assessment of the recent US tax reforms, BP expects its fourth quarter results to be impacted by a one-time non-cash charge of around $1.5 billion due to the revaluation of the company’s deferred tax assets and liabilities. However, going forward, the oil and gas major expects the reduction of corporate tax rate from 35% to 21% to have a positive impact on its earnings.
- On the operational end, BP confirmed that its Zohr gas field, offshore Egypt, started production in the December quarter. This indicates that the company’s seven major project start-ups targeted for the year have been completed. These projects are expected to add 800,000 barrels of oil per day of production to BP’s existing capacity by 2020.
- During the December quarter, BP announced that it is likely to incur a post-tax non-operating charge of around $1.7 billion for the remaining Business Economic Loss (BEL) and other claims associated with the Deepwater Horizon oil spill. The cash impact is expected to be spread over a multi-year period and the cash payments for 2018 are anticipated to go up to $3 billion as opposed to $2 billion as was previously estimated by the company.
- Additionally, BP continued to expand its operations by creating a new integrated company, named Pan American Energy Group (PAEG) in partnership with Bridas Corporation. The company is expected to be the largest privately-owned integrated company operating in Argentina. The transaction is likely to be cash-free and expected to complete in early 2018.
- Furthermore, BP has planned to invest $200 million in Lightsource, Europe’s largest solar development company, over the next three years, for a 43% stake in the business. The strategic partnership will combine Lightsource’s solar development and management expertise with BP’s global scale, relationships, and trading capabilities to promote solar projects across the world.
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