Split changes as revenue declines
In this series, we’ve been discussing BP’s (BP) operating performance following its latest financial release on July 28. In this article, we’ll compare BP’s 2Q15 and 2Q14 upstream performance through revenue split and operating income by segment.
BP’s revenue split changed between its two major segments from 2Q14 to 2Q15. Its upstream segment’s revenue share gained in 2Q15 while the downstream segment’s revenue share decreased during the same period.
BP’s upstream segment analysis
From 2Q14 to 2Q15, BP’s upstream segment revenues from third parties declined 22.3%. This was due to a decline in both its US and non-US operations during this period. 2Q15 US and non-US upstream revenues declined 39% and 36%, respectively, compared to 2Q14.
Lower upstream revenues reflect 42% lower average realized liquids (crude oil, condensates and natural gas liquids or NGLs) prices, and 33% lower natural gas prices in 2Q15 over 2Q14. BP’s hydrocarbon (an aggregate of liquids and natural gas) production changed very little between 2Q14 and 2Q15.
BP’s upstream segment’s 2Q15 replacement cost (or RC) profit was $0.23 billion (pre-tax), down nearly 94%, compared with $4.04 billion in 2Q14. The earnings fall was led by lower oil and gas prices. In 2Q15, BP recorded $600 million in exploration write-offs and other costs related to its activities in Libya, following the continued political developments there. RC profit is a measure of BP’s operating income.
BP’s 2Q15 upstream RC profit margin (upstream segment RC profit as a percentage of upstream revenues) crashed to 4% versus 58% a year earlier.
Compared to a -7% EBITDA (earnings before interest, tax, depreciation, and amortization) margin for BP in 2Q15, Statoil ASA’s (STO) 2Q15 EBITDA margin was 35%. In 2Q15, Suncor Energy (SU) recorded a 33% EBITDA margin. An EBITDA margin is EBITDA as a percentage of the company’s total revenues. ExxonMobil (XOM), BP’s peer, recorded a 5.7% net profit margin in 2Q15. XOM is 1.7% of the SPDR S&P 500 ETF (SPY) and 21.9% of the iShares US Energy ETF (IYE).
Next in this series, we’ll discuss BP’s 2Q15 downstream business drivers in depth.