BP Beats as Cost Cutting Measures Improve Bottom-Line

04/26/2016 9:30 am EST


Michael Berger

President & Founder, Technical420.com

After BP plc reported better than expected profit numbers due to lower costs, strong refining operations and an improved supply and trading contribution, the share are up more than 4% and Michael Berger, Associate Editor of MoneyShow.com, discusses how this report will impact other oil majors.

Stronger-than-expected refining and trading performance helped BP (BP) Plc report better-than-expected earnings and the shares are trading higher off of this news.

After BP reported earnings, the company released the following statement, “Lower costs, strong refining operations and an improved supply and trading contribution more than offset the impact of the weaker refining environment and the seasonal reduction in fuels sales.”

Profit Beats Expectations

BP is the first oil major to report first-quarter earnings and analysts were expecting the company to report a loss of $244.9 million.

On an underlying basis, replacement cost profit in the first quarter was $532 million, which came in above expectations. Although BP beat expectations, the reported number is significantly lower than the $2.57 billion reported during the same period last year.

The oil industry commonly uses replacement cost profit as an accounting measure to report profits because it takes the fluctuations in the price of oil into account.

Rebounding Oil Prices

The price of oil has rallied more than 30% since BP reported fourth quarter earnings and this contributed to the better than expected first quarter earnings.

Brent crude traded at its lowest level in almost 12 years this quarter and this weakness benefited BP’s refinery business. The cheap oil forced the company to cut billions in spending, layoff thousands of employees, and defer projects.

BP’s downstream business reported $1.8 billion in adjusted profit before interest and tax. This came in 49% higher than the previous quarter but 16% lower than the same quarter last year.

BP Results to Help Oil Majors Rally

We expect the market to view BP’s results as an indicator for other oil majors and this should help the stocks rally into earnings.

Total SA (TOT) is scheduled to release first-quarter earnings on Wednesday and Exxon Mobil Corp. (XOM) and Chevron Corp. (CVX) will announce results on Friday. Royal Dutch Shell plc (RDS-A) will report earnings during the following week on May 4.

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