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BP’s Upstream Earnings Surged in 4Q17

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BP’s fourth quarter segmental review

A rise in oil prices has altered BP’s (BP) segmental dynamics in 4Q17. BP’s upstream segment, which posted URC (underlying replacement cost) EBIT (earnings before interest and tax) of $0.4 billion in 4Q16, posted URC EBIT of $2.2 billion in 4Q17. The rise was due to higher crude oil and natural gas realizations coupled with higher production. Average hydrocarbon realizations rose from $31.4 per barrel of oil equivalent in 4Q16 to $37.5 per barrel of oil equivalent in 4Q17.

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BP’s downstream segment earnings rose

BP’s downstream URC EBIT rose 68% YoY to $1.5 billion in 4Q17. This was due to better margins coupled with higher refinery throughputs. BP’s average refining marker margin rose from $11.4 per barrel in 4Q16 to $14.4 per barrel in 4Q17. BP’s utilization rates rose from 94.9% in 4Q16 to 96.1% in 4Q17.

BP’s Rosneft earnings increased on a URC EBIT basis. This segment encompasses equity earnings from Rosneft, which is a giant oil company in Russia. BP owns a 19.8% stake in Rosneft. Rosneft’s URC EBIT rose from $135 million in 4Q16 to $321 million in 4Q17.

Change in segmental dynamics

Overall, URC EBIT rose from $0.9 billion in 4Q16 to $3.5 billion in 4Q17. BP’s upstream segment, which contributed 47% to overall URC EBIT in 4Q16, contributed 64% to it in 4Q17. With the steep rise in upstream earnings, contributions from other segments declined.

While Rosneft’s earnings contribution declined from 16% in 4Q16 to 9% to 4Q17, the downstream segment’s contribution fell from 102% to 42%. Other business and consolidated adjustments stood at -16% of total earnings in 4Q17 compared to -65% in 4Q17.

Thus, the rise in crude oil prices, which led to the steep rise in upstream earnings, has shifted segmental dynamics in the company considerably in the fourth quarter.

Peers’ segmental trends

BP’s peer Royal Dutch Shell’s (RDS.A) Upstream segment earnings rose sharply from $54 million in 4Q16 to $1.7 billion in 4Q17 on an adjusted basis. Also, ExxonMobil’s (XOM) adjusted upstream earnings increased from $1,493 million in 4Q16 to $2,518 million in 4Q17. Plus, Chevron’s (CVX) adjusted upstream segment earnings rose from $924 million in 4Q16 to $1,975 million in 4Q17.

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