Early on Friday morning, the London-based energy giant once known as British Petroleum, BP PLC (BP) released the firm's fourth quarter financial results.
For the three month period ended December 31st, BP posted an adjusted EPADS (earnings per American Depository Share) of $1.59 on revenue of $70.356B. Underlying profit for the quarter improved 18.3% to $4.807B, while for the full year, underlying profit improved 115.8% to $27.653B, which surpassed the $26.3B market set back in 2008.
Segment Performance
- Gas & Low Carbon Energy produced adjusted EBITDA of $4.515B (+29.8%) as capital expenditures increased 55.2% to $1.609B.
- Oil Production & Operations produced adjusted EBITDA of $5.884B (+3.3%) as capital expenditures increased 12.4% to $1.43B.
- Customer & Products produced adjusted EBITDA of $2.643B (+93.6%) as capital expenditures increased 239% to $4.149B.
Fundies
Operating cash flow increased 121.9% from the year ago comp to $13.571B, as capital expenditures increased 102.8% to $7.369B, to end up with free cash flow of $6.202B (+149.8%). Or as BP likes to lay it out... Cash inflow increased 68.4% to $14.193, as cash outflow increased 66.8% to $9.113B, leaving the firm with surplus cash flow of $5.08B (+69.7%).
Looking at the balance sheet, we see that the firm ended the quarter with a cash position of $41.327B (including investments) and inventories of $28.081B, bringing current assets to $107.688B. Current liabilities add up to $99.018B including shorter-term debt of $3.198B. This leaves the firm with a current ratio of 1.09. Sans inventories, which is a little tough because energy commodities never completely lose their value but that value certainly is volatile, leaves the firm with a quick ratio of 0.80. That really is not bad.
Total assets amount to $288.12B. This includes just $22.16B in "goodwill" and other intangibles. This is not an issue. Total liabilities less equity comes to $205.13B including $43.746B in finance debt. The firm claims net debt of $21.422B on page one of the press release. Between short and long-term finance debt, we have a total of $46.944B here. I guess that's net of cash less derivative investments? Maybe I'm just not seeing something.
Conundrum
There is a problem here. BP had been a leader in one of the most ambitious green-based overhauls in the energy industry. The firm had committed to cutting oil and gas production by 40% by 2030 as part of its plan to pivot toward cleaner forms of energy production. Then Russia invades Ukraine. Old school fossil fuels become a highly profitable big business once again that all the world appears to embrace out of necessity, and now a bit of a backtrack.
The firm now sees oil and gas production just 25% lower by 2030. CEO Bernard Looney insists that the firm still targets net zero emissions across all operations, sales and production by 2050, but in the meantime, will now spend more than $8B more on transitioning the business between the present and 2030, but will also spend $8B more on oil and gas investments as well.
Outlook
From a macroeconomic perspective, BP sees oil prices as being supported by recovering Chinese demand amid continued uncertainty around the level of Russian exports. The firm sees gas prices dependent upon the weather in the Northern hemisphere and the pace of China's recovery. Refining margins are expected to remain elevated.
For the current quarter, the firm sees upstream production flat compared to the previous quarter. The firm also sees seasonally lower volumes in its customer businesses.
For the full year, BP expects underlying upstream production to be broadly flat from 2022. The firm expects the annual underlying charge to run between $1.1B to $1.3B, while depreciation, depletion, and amortization run slightly above 2022 levels. Capital expenditures are expected to run between $16B and $18B for the year.
My Thoughts
BP, like many large oil companies, had both a nice quarter and a nice year. In fact, the firm just declared a rough 10% increase to the quarterly dividend to $0.3966 per ADS from $0.36036 per ADS. At the last sale of $36.78 (+1.93%), this is a forward looking yield of 4.31%. Not bad at all. The firm both by necessity and due to opportunity is backtracking somewhat on its shorter-term goals for going green. That's not a problem now. It may be later on.
I can see investing in BP. I do not want, however, to increase my allocation toward energy. Right now, I am long Chevron (CVX) . Not touching that one. If you're in Exxon Mobil (XOM) , that's fine. I think I need one of those two in my portfolio. Beyond that, I am in Haliburton (HAL) for services and Valero (VLO) for refining operations.
Now, I also have a Warren Buffet inspired long position in Occidental Petroleum (OXY) . I've done alright in that one, but it's been stuck in the mud for a while. OXY's dividend yield is a paltry 0.84% at that.
I would be willing to swap out of a partial in OXY and into BP at a 1.7 to 1 ratio, if it could be done for a net credit on a share per share basis of at least $25.90, while keeping the ratio in proportion. (No serious legging in.) That dividend is safe and it is calling my name.
