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What to Expect from BP’s Q4 Upstream Earnings

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Jan. 23 2019, Published 10:19 a.m. ET

BP’s upstream earnings

In the previous part, we saw BP’s (BP) earnings estimate for Q4 2018. Now let’s look at BP’s expected upstream earnings in the fourth quarter. As upstream earnings are reliant on crude oil prices and hydrocarbon volumes, let’s evaluate their trend in Q4 2018.

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Crude oil price trend in Q4 2018

Oil prices influence BP’s upstream earnings considerably. A dollar per barrel increase in the Brent price increases BP’s pre-tax replacement cost operating profit by $340 million annually. In Q4 2018, the average Brent price rose year-over-year. The Brent price has risen from $61 per barrel in Q4 2017 to $69 per barrel in Q4 2018.

Volume expectation

According to BP’s guidance, its hydrocarbon production is expected to rise quarter-over-quarter in the fourth quarter. This is because of the addition of BHP’s premium onshore assets in the quarter. These assets would strengthen BP’s footprint in the Permian Basin and Eagleford and Haynesville basins. The acquisition is expected to add around 4.6 billion barrels of oil equivalent of resources to BP’s upstream portfolio.

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BP produced 2.46 MMboed (million barrels of oil equivalent per day) of hydrocarbons in the third quarter. Thus, according to the company’s guidance, BP’s production in Q4 2018 should be higher than 2.46 MMboepd. In comparison, in Q4 2017, BP’s output stood at 2.58 MMboepd. Thus, if BP’s upstream production rises above 2.58 MMboepd, then the company could see year-over-year growth in production in the fourth quarter.

Overall

BP’s upstream earnings could rise year-over-year led by better oil prices and possibly higher volumes.

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