JOHANNESBURG - BP Plc narrowly avoided a third-quarter loss, but warned there are many challenges ahead as the pace of recovery in oil demand remains uncertain.
The company defied analyst expectations to eke out a small profit as a rebound in earnings from fuel marketing offset “extremely weak” refining margins. Yet the positive surprise may do little to change the gloomy outlook for Big Oil amid the coronavirus pandemic.
While crude prices have recovered from historic lows seen in April, BP’s profit was down 96% from a year earlier as restrictions put in place to slow the spread of the coronavirus in Europe and the U.S. kept fuel demand at bay. The company warned of a “volatile and challenging trading environment” where “the shape and pace of the recovery is uncertain.”
BP reported an adjusted net income of $86 million for the third quarter on Tuesday, down from $2.25 billion a year earlier. That’s an improvement from the second quarter, when the company posted a $6.68 billion loss.
“Having set out our new strategy in detail, our priority is execution,” Chief Executive Officer Bernard Looney said in a statement. “Despite a challenging environment, we are doing just that.”
Weaker Trading
BP’s trading division, which last quarter brought in “exceptionally strong results,” wasn’t able to cushion the blow this time around. With a less volatile market and fewer opportunities for so-called contango plays -- a trade that profits from buying and storing oil during a glut -- the unit’s earnings were “significantly lower,” the company said.
Other oil majors, who report later this week, have already told investors they experienced the same headwinds as BP. “Refining margins are absolutely terrible,” Patrick Pouyanne, Total SE’s chief executive officer, said earlier this month. Royal Dutch Shell Plc warned that its trading performance will be “below average” in the third quarter.
One positive sign for BP was a drop in net debt to $40.4 billion at the end of the third quarter, down from $46.5 billion a year earlier. After cutting the dividend in August, reducing debt is necessary to give investors confidence that the payout is now sustainable.
“Funding the dividend remains our first priority and we are confident in moving toward our $35 billion net-debt target,” Chief Financial Officer Murray Auchincloss said in the statement.
BLOOMBERG