BP set to report profit rise, but shares still lag

BPs shares are still lagging behind a rebounding oil price which is likely to push it closer to its pre-Covid profits.

Analysts expect the company’s replacement cost profit, its preferred measure, to reach 1.64 billion dollars (£1.2 billion) when it reports its results for the first three months of the year.

It would be a big step up from last quarter’s 110 million dollars (£79 million) and even up on the same period a year ago, which reached 790 million dollars (£569 million).

The rise will be defined by the oil price.

Since the start of the year the price of a barrel of Brent crude oil has increased by around 28% and has trebled since a low point a year ago.

“With oil prices having built on their 2020 recovery throughout the first three months of the year, BP should have had a reasonable trading environment to report when it posts first quarter numbers,” said Steve Clayton, manager of the HL Select Funds.

The price of Brent averaged around 61 dollars per barrel in the first quarter, compared to 44 dollars a quarter earlier, and 50 dollars in the first three months of 2020.

However the rising oil price also raises an uncomfortable question for BP and its rival Shell which also reports next week: Why have their share prices not bounced back?

Brent has more than recovered from its pre-pandemic levels, and international rivals Chevron, Total and ExxonMobil have all made significant progress since the market rout in March last year which saw share prices collapse.

But BP’s shares have only gained 16% since their worst days in March 2020 and are still more than 40% down from their pre-pandemic levels.

Shell meanwhile is up just 27% from March 2020 and also around 40% down since January 2020.

Chevron is down less than 17% from January, Total down 25%, and ExxonMobil down 20%.

It is perhaps no coincidence that Shell and BP have announced some of the most ambitious climate proposals of any oil majors in the last year.

“Investors are clearly sceptical that Shell and BP can successfully juggle, and fund, investment in their existing assets to maximise their value and spending on renewables and their new strategic direction, all while paying dividends, because the shares have failed to follow oil and gas prices higher,” said AJ Bell investment director Russ Mould.

The companies’ share prices will also not have been helped by cutting dividends, the first time since the Gulf of Mexico oil spill for BP, and the first time since the Second World War for Shell.

“Some contrarians may see this as an opportunity, given how sentiment toward the sector is so washed out, how badly the stocks have performed, the possibility of an economic upturn and the likelihood that oil will be with us as a primary source of energy for some time to come, whether we like it or not,” Mr Mould said.

“Others will fight shy on ESG grounds, either philosophical or pragmatic (given the ever-rising importance of fund flow), and simply walk away, but Mr (Bernard) Looney and Mr (Ben) van Beurden will be looking to prove their operational and strategic attractions of their charges with the first-quarter results.”

He added that analysts will quickly look at BP’s production figures when the results come out on Tuesday.

In the fourth quarter of last year this dropped by nearly a sixth.

Production could be ramping up at projects in the Gulf of Mexico, India and Oman.