- Oil prices moving against energy giant
- Weaker gas trading
- Debt pile growing
Shares in BP (BP.) cheapened 2.6% to 333p in early dealings on 11 April after the energy giant braced investors for a ‘weak’ first quarter gas marketing and trading result and warned of an uptick in net debt, heaping further pressure on the oil major’s management.
Ahead of the results on 29 April, BP said debt at the end of the first quarter is expected to be ‘around $4 billion’ higher compared to the fourth quarter.
This uptick in leverage reflects seasonal inventory effects, timing of payments including annual bonus payments and payments related to low carbon assets held for sale, although BP expects much of this to unwind in future quarters.
LOWER UPSTREAM PRODUCTION
BP said first quarter upstream production is expected to be sequentially lower, with production slightly higher in oil production and operations and lower in gas and low carbon energy including the previously announced asset sales in Egypt and Trinidad.
The London-headquartered oil major expects realisations in the gas and low carbon energy segment to be ‘broadly flat’ quarter-on-quarter, and expects the gas marketing and trading result to be ‘weak’.
The company also explained: ‘In the oil production & operations segment, realisations, compared to the prior quarter, are expected to be broadly flat including the impact of price lags on BP’s production in the Gulf of America and the UAE.’
ONEROUS DEBT PILE
Russ Mould, investment director at AJ Bell, said BP’s teaser ahead of the full quarterly results presses on one of the market’s big sore points with the company - its ‘onerous’ debt pile.
‘While BP has pegged the increase in leverage on seasonal issues and expects to see this unwind in future quarters, there will still be nagging concerns about the uptick,’ said Mould.
‘After all, oil prices have been moving sharply against BP of late and are unlikely to average the $75 per barrel they did in the first three months of the year. With lower gas production also flagged, there is little to convince the company’s activist shareholder Elliott that things are moving in the right direction.’
Mould added: ‘Despite recent news that chair Helge Lund would be leaving, CEO Murray Auchincloss is still under the spotlight amid scepticism about his recovery plan. There is a growing sense that more radical steps will be needed to steer BP back on course.’
DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (James Crux) and the editor (Martin Gamble) own shares in AJ Bell.
