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BP's Q3 Output Takes a Blow, Divestments Ahead of Schedule

Zacks Equity Research

BP plc BP recently announced that third-quarter production levels were dented by turnaround activities in some of the high-margin regions served. Moreover, in mid-July, output from the U.S. Gulf of Mexico was affected by Hurricane Barry that caused the closure of its facilities for almost 14 days. The company’s third-quarter production level was cut by 100 thousand barrels of oil equivalent per day (MBoe/d). The lower production may have affected its revenues in third-quarter 2019.

The company also stated that it had commenced a $10-billion asset divestment program — following a $10.25-billion acquisition of BHP’s onshore assets in 2018 — that was primarily scheduled to be completed in 2020. Given the pace of divestments, the company is now expected to reach its target by 2019-end.

The divestment program incorporates the sale of its Alaskan properties for $5.6 billion to Hilcorp and vending of four legacy U.S. gas assets to undisclosed parties. Owing to the divestments, the company recorded an impairment charge of $2-$3 billion in third-quarter 2019. The move is expected to offset some of its debt burden, which surged following the acquisition of BHP assets. Notably, BP currently has a debt-to-capitalization of 39.3%, way above the industry average of 21.2%.

 

 

The move is expected to strengthen the company’s balance sheet and financial flexibility, which can support upstream growth projects in the pipeline. BP has plans to bring a total of 35 major upstream projects online by 2021. Notably, the British energy giant has brought 23 projects in service so far, including four this year.

Price Performance

BP has lost 1.2% year to date compared with 2.5% fall of the industry it belongs to.

Zacks Rank and Stocks to Consider

Currently, BPcarries a Zacks Rank #3 (Hold). Some better-ranked players in the energy space are Matrix Service Company MTRX, Holly Energy Partners, L.P. HEP and Pembina Pipeline Corp. PBA. While Matrix Service sports a Zacks Rank #1 (Strong Buy), Holly Energy and Pembina hold a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Matrix Service’s 2019 earnings per share are expected to rise 58.4% year over year.

Holly Energy Partners’ 2019 earnings per share are expected to rise 8.8% year over year.

Pembina’s 2019 earnings per share are expected to rise 21.5% year over year.

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Matrix Service Company (MTRX) : Free Stock Analysis Report
 
BP p.l.c. (BP) : Free Stock Analysis Report
 
Pembina Pipeline Corp. (PBA) : Free Stock Analysis Report
 
Holly Energy Partners, L.P. (HEP) : Free Stock Analysis Report
 
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