BP: It's Going to Get Worse From Here

Although ongoing cost reduction efforts will provide some relief in the coming months, headwinds are looming that are sure to more than offset BP for some time

Stephen Simko, CFA 28 October, 2015 | 4:10PM

BP (BP.) reported third-quarter results which were very strong given the weak commodity backdrop. However, although ongoing cost reduction efforts will provide some relief in the coming quarters, headwinds are looming that are sure to more than offset for some time. Key among these is the company's strong downstream results, where adjusted profits have been $6.3 billion year-to-date, roughly double last year's levels, and good for 75% of the company's reported 2015 income.

BP cannot pay its current dividend if oil remains at $50 forever

This show of strength is largely as a result of refining margins surging in Europe and on the U.S. West Coast during 2015. Neither of these markets can structurally sustain this, however, so while this has a been a very welcome offset to low crude prices, it is far from sustainable. Indeed, thus far in the fourth quarter, refining margins in these geographies are down at least 40%.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
BP PLC300.85 GBX-0.69

About Author

Stephen Simko, CFA  is a senior stock analyst at Morningstar.

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