The Strategist

Earnings of oil majors prove the energy sector is bouncing back

05/03/2017 - 15:04

Profit of the British company BP grew almost threefold in the first quarter, amounting to $ 1.5 billion. Thus, BP became the next energy company after Exxon Mobil, Chevron and Total, which showed good financial results in the first quarter. According to experts, this indicates restoration of the energy sector in connection with rising oil prices.

Michael Roots
Michael Roots
On Tuesday, British oil and gas company BP published its financial statements for the first quarter of 2017. BP's profit grew almost threefold compared to the same period last year, to $ 1.5 billion from $ 532 million. The result was higher than expectations of experts who on average forecasted profit in $ 1.26 billion. Meanwhile, BP's debt grew in the first quarter to the highest in the last ten years at $ 38.6 billion, which can primarily be explained by compensation payments in connection with the explosion and oil spill on Deepwater Horizon platform in the Gulf of Mexico in 2010.

Last week, other energy companies also showed good results for the first quarter. Profit of the US company Exxon Mobil grew by 12%, to $ 4 billion, and another American energy company - Chevron - reported a profit of $ 2.3 billion against a loss of $ 725 million last year. Profit of French Total grew by 77%, to $ 2.85 billion. 

Good results of energy companies were prompted by growing oil prices - last year they increased by 50%, reaching $ 54 per barrel in the first quarter of this year. According to BP’s forecasts, oil prices will amount to $ 50-55 per barrel in 2017, if OPEC countries continue to cut production in the second half of the year. In this case, the price will approach the upper boundary of this corridor. At the same time, Julian Chillingworth, Rathbones Brothers investment director, said he was cautious about the prospects for the energy sector, given apparent reluctance of oil prices to rise well above $ 50 per barrel.

Over the past three years, Exxon Mobil Corp., Royal Dutch Shell Plc, Chevron Corp., Total SA and BP Plc. have rolled back projects by billions of dollars, which washed thousands of jobs from the market and led to a massive increase in debt against the backdrop of a decline in oil prices. While prices are still halfway from the levels of 2014, partial recovery combined with a reduction in spending has created conditions for revenue growth. "The current environment has been favorable for the largest companies in the first quarter," said Martijn Rats, an analyst at Morgan Stanley in London, making reference to rising prices and a good level of raw material processing.

"The rise in oil prices is the determining factor, but all the companies' efforts to cut costs bear fruit, too," said Jason Gammel, a London-based analyst at Jefferies International Ltd. - Oil prices are now nearing the point where most of the largest companies are very close to covering payment of dividends from their own income without increasing the debt burden".