Petroleum giant BP is starting to see a return to the days before the oil recession of 2014, with profits finally beginning to climb. This has allowed it to purchase all the shale assets from BHP Billiton in cash.
Given that many of the oil companies that had not diversified back in 2014 struggled so openly, BP has had a remarkable return to form highlighted by the climb in oil prices, which has occurred in the last couple of years.
Increased political turmoil worldwide usually results in commodity prices rising, and the current trade dispute between the US and China, as well as developments in Iran, have helped shift the lines between supply and demand once more.
One key indicator that has pleased investors is the underlying replacement cost profit, which has shot up to $3.8bn in quarter three this year, which dwarfs the $1.9bn that BP brought in throughout 2017.
This has allowed BP to fully acquire the shale gas assets of BHP Billiton in cash, which shows how little it needs to worry about financial liquidity or credit at present.
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The deal was agreed back in July and comes to a total of $10.5bn. It will allow the oil giant to expand its geographical presence in certain areas and shore up its production, particularly in shale gas. It is one of the biggest deals in the sector in the last two decades, demonstrating how long the oil market has been allowed to stagnate in some areas.
Bob Dudley, Group CEO, said that BP’s ‘focus on safe and reliable operations and delivering our strategy is driving strong earnings and growing cash flow.’
According to Dudley, acquisitions such as these serve as an indication of their future market direction. He said that BP is now ‘bringing new, higher-margin barrels into production faster through efficient project execution.’
When discussing the BHP deal, Dudley said it will be finalized this week, adding that ‘we have made very good progress.’
Dudley said that the company expects the deal ‘to create significant value for BP,’ part of which will come from being able to ‘transform our position in the US Lower 48’, a reference to the connected states of the US.
Investors will be buoyed by the news that some profits are finally starting to unearth, having found themselves staring at empty balance sheets following the very well-publicized Deepwater Horizon blowout in 2010.
A series of checks and industry failures led to the problem, and the failure to respond quickly enough seriously sullied BP’s name for a time in the public eye. When BP admitted some fault, it was served with some record penalties at the time and are currently still making payments of $65bn for the environmental disaster. Given that this happened eight years ago and that BP is still paying out, it suggests that the company is finally turning a corner as profits rise and the oil sector becomes stable again.
Excluding payments sent out to cover Deepwater Horizon, BP’s operating cash flow in quarter three came in at $6.6bn. This quarter also saw the company paying out $500m in penalties to the US government.
BP also announced that some of its upstream projects are currently ahead of schedule, including the Western Flank B in Australia.