Photographer: Frantzesco Kangaris/Bloomberg

BP Profit Misses Estimates as Oil’s Rally Hurts Refining

  • Company can’t yet cover spending, dividends at current prices
  • Investors may have expected a turnaround too soon, BMO says

BP Plc reported fourth-quarter earnings that missed analyst estimates after higher oil prices failed to fully compensate for lower income from refining.

Profit adjusted for one-time items and inventory changes totaled $400 million, falling short of the $567.7 million average estimate of analysts. Unlike peers Royal Dutch Shell Plc and Exxon Mobil Corp., which said cash flow now covered spending and dividends at current oil prices, BP said it wouldn’t achieve that until the end of the year, and only if Brent crude rises to about $60 a barrel.

A pattern has emerged across the industry that’s reinforced by BP’s results. Profits from oil and gas production are rising with higher crude prices, but are being offset by weaker-than-expected earnings from refining and trading.

“Almost all of the majors have missed earnings estimates and the big theme for the quarter has been weaker refining,” said Brendan Warn, a London-based analyst at BMO Capital Markets. “Maybe people were expecting things to turn around too soon.”

BP’s adjusted downstream profit before interest and tax, which includes refining and trading, fell 28 percent in the fourth quarter to $877 million, it said in a statement. The partial shutdown of its U.S. Whiting refinery, the company’s largest, hurt sales in the period, while the expense of the turnaround drove up costs. The company also posted a “small loss” from oil trading, Chief Financial Officer Brian Gilvary said in an interview.

BP dropped 2.5 percent to 464.7 pence at 8:03 a.m. in London on Tuesday, extending its decline this year to 8.7 percent. The Stoxx 600 Oil & Gas Index has fallen 4.2 percent in the period.

Net debt continues to climb, with the leverage ratio rising to 26.8 percent at the end of 2016 from 21.6 percent a year earlier, the statement shows. BP has pledged to cap it at 30 percent.

Oil and gas production totaled 2.19 million barrels of oil equivalent a day in the quarter, down 5.5 percent from a year earlier. Crude’s recovery drove adjusted earnings from the upstream business to $400 million, compared with a $728 million loss a year earlier.

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