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BP (NYSE:BP) said on Tuesday that its third-quarter earnings more than doubled from a year earlier to the highest quarterly result in more than five years, expressing confidence in cash generation that will allow the UK supermajor to fund the acquisition of BHP’s U.S. shale assets entirely from available cash.
BP’s underlying replacement cost profit—its proxy for net profit—jumped to US$3.838 billion in Q3 2018 from US$1.865 billion in Q3 2017, thanks to higher oil prices.
However, production excluding Rosneft in which BP holds nearly 20 percent was flat compared to last year at 2.460 million boe/d. Adjusted for portfolio and production-sharing agreements (PSA) impacts, underlying production rose by 6.8 percent annually, driven by continued ramp-up of production from major projects.
Looking ahead, BP expects its Q4 reported production to be higher than in Q3, thanks to the acquisition of BHP assets in the U.S. Lower 48.
BP’s US$10.5-billion acquisition of BHP assets in the Permian, the Eagle Ford, and the Haynesville is expected to close on Wednesday, the UK company said on Tuesday.
On announcing the deal—BP’s biggest acquisition in two decades—BP said in July that US$5.25 billion would be paid in cash from existing resources on completion, while the other US$5.25 billion would be payable in cash in six equal installments over six months from the date of completion. Back in July, BP intended to finance this deferred consideration through equity issued over the duration of the installments.
Today, BP signaled confidence in its cash generation capabilities and continued strict capital discipline and said that it would be able to finance the transaction fully in cash.
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“Since we announced the BHP transaction, oil prices have firmed to levels significantly above the acquisition assumptions. While oil prices remain at these levels, we expect to finance the transaction fully using cash. In this event, the $5-6 billion divestment programme linked to the transaction will be used to reduce debt. We will also continue our share buyback programme to offset dilution from the scrip dividend,” BP’s chief financial officer Brian Gilvary said in a statement.
“We have made very good progress with our acquisition from BHP and expect to complete the transaction tomorrow. This will transform our position in the US Lower 48 and we expect it to create significant value for BP. This progress all underpins our commitment to growing distributions for our shareholders,” said Bob Dudley, Group chief executive.
Following the results release, BP shares in London were rallying more than 3 percent at 11:23 a.m. local time, while in pre-market trade in New York, BP’s stock was up 3.88 percent at 07:23 a.m. EDT on Tuesday.
By Tsvetana Paraskova for Oilprice.com
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Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews.