Investors are giving a wary thumbs up to quarterly results from oil major BP (BP.). The shares rise 1% to 493p as profits for the first three months of the year come in slightly ahead of expectations and the dividend is hiked 8.3% to 9.75 cents per share.
There are some clouds on the horizon with output down 8.5% year-on-year and which is expected to reduce further in the second quarter as fields in the North Sea and Gulf of Mexico go offline for maintenance.
The third of three phases in the civil trial to determine BP’s final liabilities from the 2010 Gulf of Mexico oil spill is not due to commence until January next year but the company says a decision from the first two parts of the case could come at any time. Just $700 million of a $20 billion trust fund aimed at satisfying smaller claims remains.
The company also saw a falling contribution from its near-20% stake in Russia’s state oil firm Rosneft (ROSN)– though it still accounted for around a third of its first quarter output. BP says it will maintain its investment in the country despite Moscow’s intervention in Ukraine. Yesterday (28 Apr) BP said it was weighing the impact of US sanctions against Rosneft’s chief Igor Sechin.
Looking at today’s numbers in more detail; replacement cost profit – which strips out the impact of movements in the oil price – came in at $3.2 billion. This was just ahead of consensus at $3.1 billion and a material build on the previous quarter’s $2.8 billion but significantly down on the $4.2 billion posted in the same period a year ago.
The year-on-year drop in profits resulted from a weaker refining environment, the aforementioned lower production and a $521 million write-off charge as plans to develop a project in America’s Utica shale were canned. The company has already achieved $3 billion of the $10 billion worth of divestments targeted for 2014.
Deutsche Bank reiterates its 'buy' stance and 540p price target. Describing the dividend raise as ‘positive news’ which it had not anticipated, the bank adds: ‘Looking ahead guidance suggests a weaker second quarter in Upstream given downtime in the Gulf of Mexico and North Sea but a seasonal improvement in refining.’
VSA Capital comments: ‘In our view this is a good start for the company in 2014 and the company offers an attractive return for investors. However, we remain cautious on its legal outcome and its narrowing production profile.’