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BP Shares Soar on Better-Than-Expected Q4 2019 Earnings

By John Bromels – Feb 5, 2020 at 9:43AM

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The British oil major's stock managed to shrug off the industrywide underperformance.

At this point in earnings season, everyone was aware that British oil and gas giant BP (BP -1.80%) was likely to report reduced revenue and sharply lower earnings compared to the year-ago quarter. But the company's fourth-quarter 2019 results, which it released on Feb. 4, beat those low expectations.

Revenue was indeed down, and earnings down sharply, but they were better than analysts were expecting, which caused a jump in shares. Here's what investors need to know.

A time-lapse photo of natural gas wells pumping.

BP's production was up, but it still fell victim to lower energy prices. Image source: Getty Images.

By the numbers

Metric Q4 2019 Q3 2019 Q4 2018 % Change (YOY)
Revenue $71.1 billion $68.3 billion $75.7 billion (6.1%)
Net Income $18 million ($731 million) $771 million (97.7%)
Earnings per ADS (diluted) $0.01 ($0.22) $0.23 (95.7%)

Data Source: BP earnings release. YOY = year over year. ADS = American Depositary Share.

It's turning into a trend for the oil majors: In Q4 2019, revenue is slightly down year over year, but net income and earnings are way down, thanks to lower oil prices, refining margins, and petrochemical prices. That was true for Royal Dutch Shell (RDS.A) (RDS.B) and for Chevron, and it was true for BP as well. 

Adjusted earnings stripped out $1.9 billion in after-tax impairment charges, "mainly for the disposal of U.S. gas assets," as well as a $900 million charge "arising from the reclassification of past foreign exchange losses on the formation of BP's new biofuels joint venture." Adjusted net income was down only 26.2% from the year-ago quarter.

Increased production across the board wasn't enough to offset lower realized prices for both oil and gas, though, as production gains were minimal:

A bar chart showing BP's total production

Data source: BP earnings release. BOE/D = Barrel of oil equivalents per day. Chart by author.

Highlights from the quarter

  • In December, BP began production from its offshore Alligin field in the U.K. The development is a joint venture between BP and Shell. It was expected to eventually produce 12,000 BOE/d, but initial performance has been better than expected, reaching a peak of 15,000 BOE/d. The field is estimated to hold 20 million BOE.

  • In the smaller downstream segment, the company saw refining operating at 95% of capacity for 2019. For the second year running, BP reported record refining throughput.

  • On an after-tax basis, 2019's payments related to the 2010 Gulf of Mexico oil spill amounted to $2.4 billion. The company anticipates they will total less than $1 billion in 2020.
  • BP reduced its net debt by $1.1 billion in Q4, achieving a debt-to-equity ratio of 31.1%, down from 31.7% at the end of the previous quarter.

  • The company increased its quarterly dividend by 2.4% to $0.105/share, but the share price increase in the wake of the earnings announcement means that its current yield of 6.7% has now fallen to second place among the oil majors, behind Shell's 7.2%.

A new era for BP

Perhaps the biggest news for the company is the retirement of CEO Bob Dudley on Feb. 5, 2020. Dudley has led the company since the resignation of his predecessor Tony Hayward in the wake of the 2010 Deepwater Horizons oil spill in the Gulf of Mexico. Dudley ably steered the company through the oil price downturn of 2014 to 2017, and has generally been regarded as a capable manager.

Arguably, he was set up for success by the company's response to the oil spill: Because BP already had cut its dividend and instituted cost-control measures, it was primed for the downturn in ways other companies weren't. Hayward, the former CEO, had also made several PR missteps in the wake of the oil spill, which allowed Dudley -- a Mississippi native who handled the company's U.S. response -- to shine by comparison. 

Dudley will be succeeded by Bernard Looney, current CEO of BP's upstream segment. Like Dudley, Looney is a longtime BP insider, having joined the company in 1991 and served on the executive management team since 2010. 

In January, the company announced that CFO Brian Gilvary would be following Dudley into retirement, effective June 30. According to a press release, he "will be succeeded by Murray Auchincloss, currently CFO of BP's Upstream segment, who will take up the role of BP CFO and join the board on 1 July 2020." This isn't unusual, as many CFOs depart shortly after a CEO leaves, with a few months' transition time in between. 

What (outgoing) management had to say

In a statement, Dudley reflected on the company's Q4 results and the impending leadership change:

BP is performing well, with safe and reliable operations, continued strategic progress and strong cash delivery. This all supports our commitment to growing distributions to shareholders over the long term and the dividend rise we announced today. After almost ten years, this is now my last quarter as CEO. In that time, we have achieved a huge amount together and I am proud to be handing over a safer and stronger BP to Bernard and his team. I am confident that under their leadership, BP will continue to successfully navigate the rapidly changing energy landscape.

As the industry goes

All the oil majors grappled with lower oil and gas prices, declining refining margins, and collapsing petrochemical prices in Q4, and BP was no exception. This doesn't bode well for BP's eventual performance in the first quarter of 2020, during which spot oil prices have already fallen very close to Q4's low point. 

However, even as profits fall and oil spill payments continue, BP has managed to churn out plenty of cash to back up its generous dividend. For dividend investors, the stock -- and the oil majors in general -- still looks attractive. Other investors may want to wait and see where oil prices bottom out before buying into the energy industry.

John Bromels owns shares of BP. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Stocks Mentioned

Bp P.l.c. Stock Quote
Bp P.l.c.
$34.37 (-1.80%) $0.63
Royal Dutch Shell plc Stock Quote
Royal Dutch Shell plc
Chevron Stock Quote
$172.01 (-2.58%) $-4.55
Royal Dutch Shell plc Stock Quote
Royal Dutch Shell plc

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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