BP increases dividend for first time in four years

Oil majors continue on their road to recovery.

Article updated: 31 July 2018 10:00am Author: Helal Miah

  • The oil giant’s second-quarter profit above expectations at $2.8bn
  • The group pursues growth confidently as debt falls and dividends hike
  • The Share Centre continues to recommend BP as a ‘buy’ for medium risk investors

BP’s second quarter underlying replacement cost profits compared to the same period last year surged fourfold to $2.8bn and is a reflection of the ongoing turnaround in fortunes for oil majors. Production of oil was 1.4% higher at 3.6m barrels of oil equivalent per day as major new projects have come online and plant reliability improved.

Its key upstream business had the best quarterly performance since before the crash in oil prices in 2014. There was also good news from its stake in Rosneft where underlying replacement costs profit more than doubled. On top of production improvements there was the tailwind of much improved average selling prices of oil products and the group’s ongoing drive of pushing costs lower. These divisions performed much better than consensus expectations helping lift the shares marginally in morning trading. However it seems that the downstream refining industry is still facing a tricky period and profits here fell short of expectations.

We have seen the oil industry bouncing back as the likes of BP once again begin to consider major infrastructure upgrades and capacity expansion. There are major new project start-ups in Azerbaijan, Russia and Egypt and their acquisition of BHP Billiton’s shale assets in America for $10.5bn is a reflection of this confidence and will give BP a more diverse revenues stream.

For investors there is the good news that the net debt has reduced a little and that the dividend will rise for the first time in four years along with a share buyback programme that will be financed through the offloading of some unwanted upstream assets.

This latest set of quarterly figures gives further evidence that the oil majors are making a steady recovery progress and we believe that the much improved operational efficiency and cost structure will set them up well in the current oil price environment. There should be a sufficient buffer if oil prices fall lower again due to the lower cost structure.

With all this in consideration, we maintain our long-standing ‘buy’ recommendation for investors seeking a mixture of growth and income and willing to accept a medium level of risk.

All information given including prices, yields and our opinion is correct at the time of publication. Our opinions on investments can change at any time and for our latest view please go to www.share.com. To understand how our Investment research team arrive at their views please read our Investment Research Policy.

Helal Miah portrait photo
Helal Miah

Investment Research Analyst

After graduating with an economics degree from University College London, Helal started his career within private banking at Smith & Williamson Investment Management and later held analyst and fund manager roles with the Industrial Bank of Japan, Schroders and Mitsubishi Corporation. He is a chartered fellow of the Chartered Institute for Securities & Investment.