BP plc (BP) reported its fourth quarter 2009 results of $1.37 per ADS (American Depositary Share), below the Zacks Consensus Estimate of $1.49, but significantly above the year-earlier loss of $1.06. Weak downstream results, partly offset by upstream strength, accounted for the earnings miss.
More important than the earnings miss is the company’s relatively weak outlook for oil and natural gas production in 2010, which is weighing on the share price today in an otherwise positive day for the sector. The year-over-year improvement reflected increased production volumes, improved oil prices and stronger cost controls were the reasons behind the remarkable results. However, these positives were partially offset by tumbled natural gas prices.
BP’s quarterly earnings slipped by 8% in relation to the Zacks Consensus Estimate. The company’s experience of earnings surprise for the preceding four quarters varies between a negative 34.9% and a positive 54.1%, with the average being positive of 9.6%.
While the company’s refineries were working at a significantly higher rate, the weak refining margin environment negatively affect BP’s results as with rivals like ExxonMobil (XOM) and Chevron (CVX).
BP expects its capex budget to be in the range of $22 billion to $23 billion for the year, including disposal proceeds. The company’s attractive dividend (currently yielding around 6%) remains unchanged from the year-ago level. We believe that BP’s dividend is safe with the recent uptrend in oil prices.
Net cash provided by operating activities for the quarter was $7.3 billion compared to $5.6 billion a year ago. Net debt at the end of the quarter was $26.2 billion, representing a net debt-to-capitalization ratio of 20% (compared to 21% at the end of previous quarter).
Total production for the quarter jumped 3% year over year to 4.05 MMboe/d (million barrels of oil equivalent per day, 64% liquid), reflecting strong operating performance. If we adjust for entitlement impacts and OPEC quota restrictions, the increase would still be 3%.
Average realization for liquids and natural gas were $68.02 per barrel and $3.68 per Mcf, up 31% and down 28%, respectively, from the year-earlier level.
The refining and marketing business witnessed a loss of $1.9 billion, largely hurt by the U.S. refining margin which for the quarter was $1.49 per barrel compared to $5.20 per barrel in the fourth quarter of 2008. The improved cost and operational momentum was offset by a weak margin environment. Total refinery throughput increased more than 13% year over year, while refining availability increased to 94.4% versus 91.4% in the fourth quarter of 2008.
While management of the company anticipates a slow and gradual economic recovery this year, BP will continue to focus on improving upstream exposures and reducing downstream operations.
BP’s ADS, however, fell 5.1% at pre-market trading (and has yet to make up half of that loss during Tuesday trading) based on the company’s weaker-than-expected refining performance. We currently have a Neutral recommendation for BP.
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