BP books a loss as Covid-19 hits oil demand

Oil major rocked by the pandemic, but Q4 performance brings optimism.

BP (LSE:BP.) has made some strong progress in recent months, but unfortunately its full-year results show the damage had already been done as the pandemic ravaged both oil demand and therefore its price.

At the current level of around $56 (£40.91), the oil price is comfortably above BP’s “cash balance point” of $42 and even further away from its longer-term breakeven target of $35.

This has helped to ease some of the pressure the company had been facing, and net profit for the fourth quarter of $1.4 billion compares with a loss of $450 million in the third quarter.

Similarly, the preferred measure of underlying replacement cost profit improved quarter to quarter from $86 million to $115 million.

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Over the year as a whole, however, the picture is starkly different. An overall loss of $20.3 billion compares to a profit of $4 billion in the previous year, and an underlying replacement cost loss of $5.7 billion with a previous profit of $10 billion.

With net debt still standing at $39 billion, albeit reduced by $6.5 billion over the year and with the near-term target of $35 billion a year away, it is little surprise that the company has been ramping up its disposal programme.

It is already halfway towards its target of $25 billion of disposals by 2025, while access to liquidity of $44 billion provides a significant cushion if it were needed.

Importantly however, the prodigious amount of cash which the company generates has allowed $12 billion of capital expenditure to underpin further growth. At the same time, the move towards renewable or alternative energy continues to gather pace, with an offshore wind, carbon offset and electric car charging presence likely to be the thin end of a long-term strategic wedge.

Such cash generation has also enabled the continued payment of a dividend, although share buybacks are a step too far for the time being. Despite the dividend reduction announced during the year, the current yield of 8.6% maintains BP’s position as an investment destination for income-seekers.

The company’s outlook in the immediate future is understandably cautious and somewhat out of its hands, with supply controlled by OPEC and demand currently depressed by the effects of the pandemic. The year has been blighted by these factors, with some significant writedowns leaving their mark.

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The more recent improvements have been reflected in a share price which has risen by 38% since November, although this cannot mask the fact that the shares remain down by 41% over the last year, as compared to a decline of 11% for the wider FTSE 100.

Even so, BP is working hard to grow while transforming and to streamline while venturing into new areas. The company has continued to engender longer-term optimism from investors, with the market consensus of the shares as a ‘buy’ remaining intact.