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BP shares: what's the latest as Q1 2020 profits fall by 67%?

BP has published its Q1 2020 profits, which reveal a dramatic 67% fall, with the firm citing slumping oil prices and ‘demand destruction’ as main factors.

BP's underlying replacement cost profit, which is typically used as a measure of the firm’s net profit, declined to $800 million in the first quarter (Q1) of 2020, representing a year-on-year (YoY) decline of 67% compared with Q1 2019.

Worse still, the firm’s major debt soared sharply to $51.4 billion with warnings of considerable uncertainty ahead forcing the BP share price down by over 2% in today’s early trading. The news threatens to pare the gains made by the BP share price in the last week when the price accelerated from 291 to 318 in the space of 24 hours on 22 April.

Supply and demand volatility ‘on a scale never seen before’

The sheer scale of the decline in revenue for BP is attributed to the cliff-edge slump in worldwide demand for oil and gas following the global economic shutdown caused by the coronavirus pandemic. Lockdowns for most sectors, coupled with unprecedented travel bans around the world, have left oil giants scrambling.

BP chief executive Bernard Looney, who was only appointed in the top role in February, said that the firm was committed to cutting overheads by $2.5 billion by the end of 2021 to try and push its break-even cost per barrel of oil to just $35.

'Our industry has been hit by supply and demand shocks on a scale never seen before, but that is no excuse to turn inward,' said Looney.

'We are focusing our efforts on protecting our people, supporting our communities and strengthening our finances.'

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$32 billion held in liquidity to cope with the decline in revenue

As BP’s major debt rises to $51.4 billion – 6% higher than the company’s benchmark debt-to-capital ratio – the global economy shows little signs of life, it has rightly held back up to $32 billion in liquidity for the next quarter in a bid to cope with the drop in revenue and the potential for even more declines in Q2 2020 – particularly given that most nations will be in lockdown for much of April and May.

The one positive to come out of these latest figures is that the $800 million underlying replacement cost profit was $90 million higher than the net profit previously forecast by analysts.

BP revises terms of its $5.6 billion Alaska sale

Amid the financial uncertainty, BP has reaffirmed its commitment to sell its Alaskan business to Hilcorp, which was initially announced last August. However, BP has revised the financial terms of its $5.6 billion sale, which could result in a lower than anticipated cash boost.

The revised agreement maintains the $5.6 billion sale price but also caters for vendor financing, reduced payments in 2020 and short-term cash-flow sharing to sweeten the deal in these volatile market conditions.

How to trade the BP share price

Interested in taking a position on BP following the release of their Q1 2020 profits? You can trade the BP share price through derivatives, or buy and own the stock, using IG’s world-class trading platform.

Whether you plan to buy (long) or sell (short) the BP share price, follow these five simple steps:

  1. Create an IG trading account or log in to your existing account
  2. Enter ‘BP’ in the search bar and select the share
  3. Choose your position size
  4. Click ‘buy’ or ‘sell’ in your deal ticket
  5. Confirm your trade

The information on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG Bank S.A. accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer.

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