Quarterly dividend raised as the oil giant beats expectations.
BP profits double thanks to higher oil price and production boost
- Market pleased to see BP’s Q3 profits double and hear that cash generation from acquisition of BHP’s oil assets will reduce debt
- Quarterly dividend raised 2.5% with strong production expected to rise further in Q4
- We recommend BP as a ‘buy’ for income seeking investors
Oil giant BP today beat market expectations with profits in the third quarter more than double those of a year ago. The increase was mainly due to the higher oil prices seen in the period allied to a 6.8% increase in underlying production. The market was also pleased to hear that cash generation has been such that the $10.5bn acquisition of BHP’s shale oil assets in the US will be funded entirely from cash and the proceeds of the divestment programme will now be used to reduce debt instead.
On a less positive note the impact of the Gulf of Mexico oil spill are still being felt and there were payments of $500m relating to that during the quarter. Nonetheless, investors should acknowledge that the quarterly dividend was raised 2.5% and the company said it expects production in the fourth quarter to rise further.
The market has responded well to all of this good news from BP today, with the shares rising 4.5% in early trading. Having made extensive efforts to reduce costs in recent years, the company is in a good position to benefit from the rise in the oil price, although BP is planning on the basis of the price being closer to $60 than the current $77. The addition of the BHP oil assets is a further positive for investors so we continue to recommend the stock as a ‘buy’ for investors willing to take on an intermediate level of risk while looking for capital growth and income.
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