How Rising Upstream Earnings Affect BP’s Segmental Dynamics
BP’s segmental dynamics
Crude oil prices have been altering BP’s (BP) segmental dynamics. We’ll look at each segment’s contribution to BP’s overall earnings. First, let’s see how each segment performed.
BP’s Upstream segment reported a URC (underlying replacement cost) EBIT1 of $29.0 million in 2Q16, which increased to $710.0 million in 2Q17. The rise was due to higher crude oil and natural gas prices as well as greater production. Brent prices rose from an average $46.00 per barrel in 2Q16 to $50.00 per barrel in 2Q17.
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Downstream segment’s earnings fell
BP’s Downstream segment’s URC EBIT fell 7% year-over-year to ~$1.4 billion in 2Q17 due to weaker throughput following turnaround activities during the quarter. BP’s average RMM (refining marker margin) stayed steady at $13.80 per barrel in 2Q17 over 2Q16. BP’s refineries’ utilization rate dropped from 95.7% in 2Q16 to 94.5% in 2Q17.
Its Rosneft segment’s earnings rose on a URC EBIT basis. This segment has equity earnings from Rosneft, Russia’s largest oil company. BP holds a 19.8% stake in Rosneft. The segment’s URC EBIT rose to $279.0 million in 2Q17 from $246.0 million in 2Q16.
Overall, BP’s URC EBIT rose from ~$1.3 billion in 2Q16 to ~$2.2 billion in 2Q17. The Upstream segment, which contributed just 2% to BP’s URC EBIT in 2Q16, contributed 33% in 2Q17.
BP’s Downstream segment, which was the largest contributor in 2Q16, contributed 65% to BP’s URC EBIT. So, rising oil prices have shifted BP’s segmental dynamics.
Peers’ segmental trends
BP’s peers ExxonMobil (XOM), Royal Dutch Shell (RDS.A), and Chevron (CVX) have also seen their contributions from segmental earnings change in 2Q17. ExxonMobil’s Upstream earnings increased to ~$1.2 billion in 2Q17 from $294.0 million in 2Q16.
CVX’s Upstream segment, which posted a loss in 2Q16, saw its earnings rise to $853.0 million in 2Q17. Shell’s (RDS.A) Upstream segment’s earnings had plunged to ~-$1.3 billion in 2Q16, but improved to a profit of ~$339.0 million in 2Q17 on an adjusted basis.
- earnings before interest and tax ↩