By Sarah Kent, Justin Scheck and Inti Landauro
LONDON-- BP PLC of the U.K. and Total SA of France each reported
sharply lower quarterly profits on Tuesday while providing glimpses
into how the world's largest oil companies are weathering the
depths of an oil-price crash.
BP's version of net income plunged by 40% from a year earlier
and its cash flow nose-dived more than 75%, while Total's net
profit fell by 20%. Both companies saw their revenues from oil
sales plummet as crude traded for about $54 a barrel in the first
quarter of 2015, half its price a year earlier.
In a sign of how bad things have been for big oil companies,
those numbers were seen as being better than expected. Three months
ago, Total reported a $5.7 billion loss for the fourth quarter of
2014, while BP's losses totaled almost $1 billion.
This time around, BP and Total--the world's fourth- and
fifth-largest independent oil companies by market value--were
helped by increased production, deep cost cuts and healthy profits
from their refining businesses. To some industry observers, the
results indicate that oil companies may be able to cope with low
prices better than many investors expected.
"The dire earnings collapse is not going to be as bad as
generally anticipated," said Brian Youngberg, an analyst at Edward
Jones.
Two other huge oil companies, Exxon Mobil Corp. and Royal Dutch
Shell PLC, will reveal on Thursday whether similar measures worked
for them during the downturn. Italian energy giant Eni SpA reports
results on Wednesday, while Chevron Corp. comes out on Friday.
BP and Total demonstrated the advantages of an integrated oil
company--one that explores for oil, extracts it, refines it and
sells it to customers--when oil prices drop. Easing the damage were
their downstream operations, which refine, ship and trade oil and
gas. BP's profits from its downstream operations more than doubled
year on year, while Total saw its operating income from its
refining and petrochemicals division almost tripled.
Total is "profiting from its integrated model," Chief Executive
Officer Patrick Pouyanné said.
For BP, the results come at an uncertain moment. It has been
trying to simultaneously weather the oil slump and come back from
its massive spill in the Gulf of Mexico five years ago. Its
shrinking size made it the subject of takeover talk in the wake of
rival Royal Dutch Shell PLC's $70 billion deal to buy BG Group PLC
(though a U.K. official says the government would move to block a
foreign acquisition of BP).
BP was aided in the latest quarter by a U.K. tax break for
companies operating in the North Sea, though it didn't quantify the
benefit. Mr. Gilvary said the company is continuing with a program
of cost cuts, slashing staff, cutting capital spending and trying
to reduce other expenses. First-quarter capital expenditures fell
by almost 20% from a year earlier to $4.4 billion. Mr. Gilvary said
the company has sold more than $7 billion in assets as part of a
$10 billion planned selloff to end this year. The company has
already committed to cut capital spending by 20% this year to $20
billion.
BP and Total both said their trading arms had capitalized on the
market's condition after the slump in oil prices created a
contango, in which current oil prices are cheaper than those in the
future. That lets traders store oil they bought at low prices while
locking in a profit by selling pricier futures.
As BP unwinds its position throughout the year, more cash could
return to its balance sheet. While BP rarely provides details on
its trading performance, Chief Financial Officer Brian Gilvary said
trading results last quarter were $300 million to $400 million
better than normal.
Ivor Pether, a fund manager at Royal London Asset Management,
said the quarterly results offer some encouragement that BP can
deliver on its cost-cutting plans. Royal London held more than $680
million in BP stock as of earlier this month.
But, he added, "I'm terribly wary of interpreting too much from
the quarterly figures," since some savings and trading profits are
"not necessarily repeatable."
Total was helped by the fact that many of its aggressive
investment projects, carried out when oil prices were much higher,
are due to start pumping oil and gas.
During the first quarter of this year, Total increased
production by 10% to 2.4 million barrels of oil equivalent a day,
the strongest increase in a decade. The company attributed this to
the start of several projects in the North Sea and in Nigeria, an
increase of production in Angola and the recent partnership signed
with Abu Dhabi.
The bottom line in the first quarter was also lifted by capital
gains worth about $1 billion from the sale of such assets as its
petrochemical unit Bostik and minority stakes in oil fields in
Nigeria.
But there were also warning signs. Total wrote down $659 million
on the value of its assets in Libya given the impact of the
violence in the country, and $93 million on its assets in Yemen as
political instability has recently worsened.
Moreover, the company said the improved performance of its
refining business only marked a brief respite in an industry that
has long suffered from overcapacity. Refining margins have already
started to fall, Total said.
"Using the first quarter as a proxy for the full year would not
be correct," Total's Chief Financial Officer Patrick de la
Chevardière said in a conference call with analysts.
Write to Sarah Kent at sarah.kent@wsj.com, Justin Scheck at
justin.scheck@wsj.com and Inti Landauro at
inti.landauro@wsj.com
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