Integrated oil giant BP is worming its way back into the affections of UK pension fund managers after raising its divi on the back of forecast beating third quarter results.
Adjusted replacement cost profit in the third quarter was $5.17bn, up from $3.69bn in the preceding quarter but down from $5.46bn in the corresponding quarter of 2011.
The better than expected performance was driven by a strong performance from the refining (downstream) business, where underlying replacement cost profit before interest and tax improved to a record $3,004m from $1,129m in the preceding quarter and $1,666m in the corresponding period of 2011.
Refining margins are expected to decline in the fourth quarter, however, in line with seasonal trends. Refining throughput is also expected to be lower due to turnarounds and the start of a transitional outage to replace the largest of three crude units at BP's Whiting refinery, as part of the major upgrade project.
Performance from the upstream (oil production) operations was on a par with the second quarter, with the profit figure ebbing a tad to $4,369m from $4,401m in the second quarter; in the third quarter of 2011 upstream underlying replacement cost profit before interest and tax was $6,287m.
The quarterly dividend has been hiked to nine cents from eight cents in the second quarter. The group's dividend payment used to be a mainstay of UK pension funds before it was suspended in the wake of the Gulf of Mexico oil well disaster, but the group resumed dividend payments at the beginning of last year.
"BP's performance and the strong progress we are making in transforming the company give us the confidence to increase distributions to our shareholders," said Chief Executive Bob Dudley.
Including the impact of the Gulf of Mexico oil spill, net cash provided by operating activities for the third quarter was $6.3bn, compared with $6.9bn a year earlier.
Reflecting the proposed sales of its stake in the TNK-BP joint venture to Rosneft, BP remains confident in delivering more than 50% growth in net cash provided by operating activities by 2014, assuming an oil price
of $100 per barrel.
TNK-BP contributed $1,294m to underlying replacement cost profit before interest and tax in the third quarter, up from $452m in the preceding quarter and $939m the year before.
Net debt at the end of the quarter was $31.5bn, compared with $25.8bn a year ago. The ratio of net debt to net debt plus equity was 20.9% compared with 18.9% a year ago.
Total capital expenditure for the third quarter was $6.1bn, of which organic capital expenditure was $5.9bn. Full year organic capital expenditure is now expected to be between $22bn and $23bn.
In a call with investment analysts on Tuesday the group is set to provide an update on progress against its strategic 10-point plan for 2014, and will outline its future direction. In a sneak preview, however, BP boss Bob Dudley said "we are on track with our strategy to 2014 and are laying the right foundations for sustainable growth during the coming decade."
BP expects to generate future growth through increased investment in new upstream projects in higher-margin areas and through new access and exploration.
BP anticipates making a final payment of $860m into the $20bn Gulf of Mexico Trust Fund in the fourth quarter of 2012. At the end of the third quarter, the cash balances in the Trust Fund and the Qualified Settlement Funds amounted to $10.9bn, with $19.1bn contributed and $8.2bn paid out.
The group said it is still in discussions with the US Department of Justice, which is conducting an investigation into the Gulf of Mexico oil spill regarding civil and criminal laws. BP is also talking to various other federal agencies regarding a possible settlement of claims against the company.
BP says it is prepared to settle "on reasonable terms" but added that there are a number of unresolved issues outstanding, and there is significant uncertainty as to whether an agreement will ultimately be reached before the case goes to court in late February 2013.