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Does BP Have Weaker Financials than Its Peers?

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BP’s debt position

BP’s (BP) has the highest percentage of debt in its capital structure. In the first quarter, BP’s total debt-to-capital ratio stood at 43%, the highest among its peers. ExxonMobil (XOM) and Chevron (CVX) had lower ratios of 17% and 18%, respectively. Suncor Energy’s (SU), Royal Dutch Shell’s (RDS.A), and Total’s (TOT) debt ratios stood at 30%, 32%, and 33%, respectively, in the first quarter.

BP’s net debt-to-adjusted EBITDA ratio rose from 1.4x in the first quarter of 2018 to 1.5x in the first quarter of 2019. This ratio was again the highest among its peers. ExxonMobil, Chevron, and Total’s net debt-to-adjusted EBITDA ratios stood at 1.0x, 0.7x, and 0.9x, respectively, in the first quarter of 2019. Suncor’s and Shell’s ratios stood at 1.4x and 1.2x, respectively.

BP’s net debt-to-adjusted EBITDA and total debt-to-capital ratios stood the highest among its peers—not a comfortable situation.

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Cash flows

In the first quarter of 2019, BP’s cash flow from operations of $5.3 billion fell $1.6 billion short of covering its combined capex and dividend outflows. Thus, BP’s cash flow shortfall stood at 31% (represented as a percentage of its earnings capacity—that is, its cash flows from operations), again the highest among its peers—and again not a favorable scenario. ExxonMobil’s, Chevron’s, Suncor’s, and Shell’s shortfalls were lower at 4%, 3%, 1%, and 4%, respectively. Total’s shortfall stood at 25% in the first quarter.

Earnings growth in 2020

BP is expected to post a 19% rise in its EPS in 2020. BP has a robust upstream portfolio with a strong product pipeline. However, BP’s growth activities have weakened its debt and cash flow position, so the company should try to strike the right balance between growth and financial strength.

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