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Analyzing BP’s Earnings Mix in 2018

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Change in segmental dynamics

A rise in oil prices has altered BP’s (BP) segmental dynamics in 2018. BP’s adjusted EBIT rose from $11.9 billion in 2017 to $23.1 billion in 2018. The segmental contributions have changed radically.

BP’s upstream segment, which contributed 49% to the overall adjusted EBIT in 2017, added 63% in 2018. Rosneft’s earnings contribution rose from 7% to 10% during the same period. With the steep rise in the upstream and Rosneft earnings, the contributions from the downstream segment declined—despite the increase in downstream earnings. BP’s downstream segment’s contribution fell from 59% in 2017 to 33% in 2018. Other business and consolidated adjustments were -6% of the total earnings in 2018—compared to -15% in 2017.

The rise in oil prices has led to an increase in upstream earnings, which has altered the segmental earnings mix in the company. BP has successfully created an integrated earnings model capable of supporting earnings in a volatile oil price environment.

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BP’s segmental earnings in 2018

BP’s upstream adjusted EBIT rose 148% YoY (year-over-year) to $14.6 billion in 2018 due to better realizations and higher volumes. BP’s adjusted EBIT in the Rosneft (BP’s equity stake in a Russian oil company) segment rose 177% YoY to $2.3 billion. BP’s downstream earnings rose 9% YoY to $7.6 billion in 2018 due to better marketing margins.

Next, we’ll discuss whether BP’s debt position improved in the fourth quarter.

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