BP profits surge as output grows, but debt rises

By Ron Bousso

LONDON (Reuters) - BP's profits surged in the first three months of the year to their highest since mid-2014, driven by a recovery in oil and gas prices and rapid growth in production.

At the same time, the London-based company saw its debt pile rise to $40 billion due to the settlement of more lawsuits over the deadly 2010 Deepwater Horizon spill in the Gulf of Mexico which has cost it more than $65 billion.

A nearly 25 percent rise in oil prices over the past year has lifted revenue for oil companies, shifting investors' focus to how much cash they can generate following years of cost cuts.

BP shares were 0.7 percent higher at 0750 GMT, compared with a 0.2 percent gain in the European oil and gas index.

BP's cash flow from operating activities rose sharply from a year earlier to $3.6 billion, but declined from the previous quarter as a result of the Deepwater Horizon payments and one-off charges. Stripping those out, cash flow reached $7 billion in the quarter, the strongest since 2014.

"Overall it was a very healthy set of results," said Martijn Rats, analyst at Morgan Stanley, which has a "neutral" recommendation on BP stock.

BP's results follow a mixed picture from the sector. Royal Dutch Shell and Exxon Mobil fell short of forecasts, while results from Chevron and Total were stronger than expected.

BP's underlying replacement cost profit, its definition of net income, rose 71 percent to $2.6 billion in the first quarter, exceeding the $2.2 billion forecast by analysts in a company-provided survey.

The last time BP generated so much profit was in the third quarter of 2014, when oil prices averaged $104 a barrel. Brent crude is currently trading around $75 a barrel. [O/R]

BP launched seven oil and gas fields in 2017, a record year, and is set to inaugurate six more projects this year including in Egypt, Azerbaijan and Britain's North Sea, which will help it boost production by 800,000 barrels per day (bpd) by 2020, most of it gas.

First-quarter production rose 6 percent to 3.7 million bpd.

Availability of oil and gas assets was at 96 percent, the highest on record, which helped boost output, Rats said.

"It's not only about the oil price, it is also about the performance of the kit," Chief Financial Officer Brian Gilvary said in a video presentation.

BP last October announced plans to buy back $1.6 billion in shares per year, becoming the first European oil and gas major to resume buybacks after a three-year downturn.

The move was aimed at offsetting the dilutive effect of scrip dividends, where shareholders can opt to receive dividends via cash or shares.

In the first quarter, BP bought back 18 million shares worth $120 million.

BP's gearing, the ratio between debt and BP's equity market value, stood at 28.1 percent at the end of the quarter, up from 27.4 percent at the end of 2017. Net debt at the end of March was $40 billion, up from $37.8 billion at the end of 2017.

The results were impacted by a $1.6 billion pretax payment for the settlement of the Deepwater Horizon spill. BP is expected to pay $3 billion in 2018.

Morgan Stanley's Rats said debt was expected to fall in the second half of the year after most of the Deepwater Horizon claims are settled and production continues to rise.

(Reporting by Ron Bousso; Editing by Jason Neely and Mark Potter)