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BP’s Upstream Earnings: What to Expect in Q1

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Dec. 4 2020, Updated 10:53 a.m. ET

BP’s upstream earnings

In this part, we’ll review the prospects for BP’s (BP) upstream earnings in the first quarter.

Oil prices have been recovering in the first quarter. So far, the average oil prices in the first quarter are lower. A $1 per barrel decline in the Brent price decreases BP’s pre-tax replacement cost operating profit by $340 million annually.

In the first quarter, the average WTI price is lower YoY (year-over-year) and sequentially. The average WTI price is $52 per barrel in the first quarter, which is lower than the average oil price of $63 per barrel in the first quarter of 2018. The first-quarter average is lower than the average of $60 per barrel the previous quarter.

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Volume expectation

According to BP’s guidance, its hydrocarbon production is expected to stay flat sequentially in the first quarter. The production is expected to be flat due to divestments in Alaska and the North Sea and maintenance activities in the Gulf of Mexico—offset by new projects startups and the addition of BHP’s premium onshore assets.

BP produced 2.63 MMboepd (million barrels of oil equivalent per day) of hydrocarbons in the fourth quarter. According to BP’s guidance, its production in the first quarter should be ~2.63 MMboepd—higher than 2.60 MMboepd in the first quarter of 2018. BP’s production could increase YoY in the first quarter.

Summary

BP’s upstream earnings could fall YoY due to lower oil prices—partially offset by higher volumes. The company’s earnings could fall sequentially due to lower oil prices. In 2019, analysts expect BP’s EPS to fall 15%.

Lower oil prices YoY could dent ExxonMobil (XOM) and Chevron’s (CVX) upstream earnings in the first quarter. Analysts expect ExxonMobil and Chevron’s earnings to fall 12% each in 2019.

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