Advertisement

BP turns leaner and meaner

Shares in BP soared after the oil giant ditched billions of dollars-worth of assets and jacked up its dividend.

Oil giant BP announced underlying profits of $3.7bn in the third quarter, down from $5bn a year ago, but ahead of expectations. The drop was largely due to asset sales.

It has ditched $38bn of its holdings to compensate for the cost of its 2010 Gulf of Mexico oil spill. BP announced another $10bn of disposals and said the money would go to shareholders.

Advertisement - Article continues below

It also raised its dividend by 5.6%. The stock jumped by 5%, propelling the FTSE 100 to a five-month high.

What the commentators said

Oil majors have more than doubled capital investment to $130bn in the past seven years, according to McKinsey, but the splurge hasn't been productive.

Return on capital is still below the level of five years ago. So investors are glad BP is keeping spending levels flat and giving them money.

Meanwhile, said John Ficenec in The Daily Telegraph, even though revenue is to decrease over the next few years as disposals are made, profitability and cash flow look set to improve. So the oil business is becoming more efficient.

That is the reason why the management is confident enough to increase the dividend. "Shrink to fit worked for Levi's," said Lex in the FT. "It seems to be working for BP too." The company has, indeed, become "leaner and meaner".

Nonetheless, there is still a "huge unknown around the court ruling in the US", said Ficenec. At issue now is how much oil was spilt.

If BP is found to have been grossly negligent, it could face fines of more than $18bn.But if its estimate of the oil spill is accepted and it is deemed merely negligent, the fine will be just $2.7bn. Shareholders can't relax just yet.

Advertisement
Advertisement

Recommended

Visit/520272/iran-and-us-oil-price
Global Economy

What escalating tension between Iran and the US means for oil prices

The tension between the US and Iran is unlikely to mean all-out war in the Middle East. But markets may be getting a little too complacent about its e…
6 Jan 2020
Visit/519785/rising-output-will-keep-a-lid-on-the-oil-price
Oil

Rising output will keep a lid on the oil price

Oil exporters’ cartel Opec gave further encouragement to the bulls this month after agreeing to new production curbs.
20 Dec 2019
Visit/518797/brace-yourself-for-pricier-oil
Oil

Brace yourself for pricier oil

Global growth, and hence demand for oil, could surprise on the upside next year, leading to a bounce in the oil price.
29 Nov 2019
Visit/515540/why-has-the-oil-market-taken-the-saudi-attack-so-calmly
Economy

Why has the oil market taken the Saudi attack so calmly?

After an initial spike in the oil price, the market seems to have shrugged off the attack on Saudi Arabia’s oil infrastructure. John Stepek asks if it…
23 Sep 2019

Most Popular

Visit/investments/property/601606/house-prices-crash-uk-property-prices-falling-where-next
Property

House price crash: UK property prices are falling – so where next?

With UK property prices falling for the first time in eight years, are we about to see a house price crash? John Stepek looks at what’s behind the sli…
2 Jul 2020
Visit/economy/inflation/601584/the-end-of-the-bond-bull-market-and-the-return-of-inflation
Inflation

The end of the bond bull market and the return of inflation

Central bank stimulus, surging post-lockdown demand and the end of the 40-year bond bull market. It all points to inflation, says John Stepek. Here’s …
30 Jun 2020
Visit/investments/stockmarkets/601611/nasdaq-all-time-high-markets-and-the-real-economy
Stockmarkets

How can markets hit new record highs when the economy is in such a mess?

Despite the world being in the midst of a global pandemic, America's Nasdaq stock index just hit an all-time high. And it's not the only index on a bu…
3 Jul 2020