Despite Lower Profits, BP Increases Dividend

The global drop in oil prices over the summer led to a steep drop in BP’s third-quarter profits, but that hasn’t stopped the British energy giant from raising its dividend.

BP’s revenues from July through September fell from $96.6 billion in 2013 to $93.9 billion in 2014. In the same period this year, the price of Brent crude was $102 a barrel on average, compared with almost $110 a barrel in the second quarter of this year, and more than $110 in the third quarter of 2013.

At the same time, BP’s underlying replacement profit declined to $3 billion during the third quarter of 2014. That profit, a key gauge of the performance of large oil companies, excludes non-operating items and fluctuations in accounting. During the third quarter of 2013, the underlying replacement profit was $3.7 billion, and in the second quarter of 2014 it was $3.6 billion.

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In the month since the quarter ended, oil prices have declined further – on Oct. 27 Brent crude closed at $85.83 a barrel and U.S. crude fell to $79.44 – indicating an even greater drop in profits for large oil companies in this year’s final quarter.

Those values weren’t helped by Goldman Sachs’s decision on Oct. 26 to reduce its oil price forecasts, including West Texas Intermediate and Brent, crude oil’s world benchmark. The New York-based investment bank attributed the lower forecast on a combination of booming production and weak demand during a period of weak economic growth worldwide.

Goldman previously had estimated a price of $100 per barrel for Brent during the first quarter of 2015, but has now lowered that forecast to $85 per barrel.

Despite all this unfavorable news, BP said its own financial strength and vigorous cash flow warranted the raising of its dividend by 5.3 percent to 10 cents a share. For example, profit at the company’s downstream operations – refining and processing oil and gas – more than doubled from $700 million to $1.5 billion.

BP CEO Bob Dudley explained, “Growing underlying production of oil and gas and a good downstream performance generated strong cash flow in the third quarter, despite lower oil prices. This keeps us well on track to hit our targets for 2014.”

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Meantime, group profits also were constrained because of a plunge in net income at Russia’s government-run oil giant Rosneft, in which BP owns a stake of nearly 20 percent. Income at Rosneft has fallen from $808 million from $110 million during the most recent quarter because of the fall in the value of the ruble compared with the U.S. dollar.

There’s been concern about the value of BP’s share in Rosneft because of EU and U.S. sanctions imposed on Russia, particularly its oil companies, in the continuing international dispute over Ukraine. But BP said that it has felt no negative impact from the sanctions.

Still, BP will be tightening its belt somewhat, spending a total of about $23 billion on capital projects for all of 2014, about $2 billion less than originally planned.

By Andy Tully of Oilprice.com

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