BP profits surge after oil giant shrugs off three-year slump

BP’s profits more than doubled in 2017 to $6.2 billion powered by higher prices and output of oil and gas, allowing the company to resume share buybacks as it recovers from a three-year downturn. (AFP)
Updated 06 February 2018
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BP profits surge after oil giant shrugs off three-year slump

LONDON: BP’s profits more than doubled in 2017 to $6.2 billion, powered by higher prices and output of oil and gas, allowing the company to resume share buybacks as it recovers from a three-year downturn.
The London-listed company saw one of the strongest output increases in its history last year, lifting production to levels not seen since the 2010 Deepwater Horizon spill.
Production is set to continue growing into the end of the decade thanks to more field start-ups this year.
BP would generate profits in 2018 at an oil price of $50 a barrel, Chief Financial Officer Brian Gilvary told Reuters, as years of spending cuts kicked in and it slowly shakes off a $65 billion bill for penalties and clean-up costs of the 2010 spill.
BP was the first among its European peers to resume share buybacks in the fourth quarter of 2017 after years of dilutive austerity measures in the face of the industry slump.
With a 20 percent bounce in oil prices in the last quarter of 2017 to $61 a barrel, BP had a surplus of cash that allowed it to buy $343 million worth of shares in the fourth quarter, offsetting the scrip dilution.
“2017 was one of the strongest years in BP’s recent history,” CEO Bob Dudley said in a statement. “We enter the second year of our five-year plan with real momentum, increasingly confident that we can continue to deliver growth.”
Full-year production rose 12 percent to 2.47 million barrels per day (bpd) after BP launched seven new oil and gas fields in 2017, a record year.
It is set to start up six additional projects this year, including in Egypt, Azerbaijan and Britain’s North Sea, helping boost production by 900,000 barrels of oil equivalent per day by 2021, most of it gas. It previously said it would launch five new projects this year.
BP added about 1 billion of barrels of oil, equivalent to its reserves in 2017, the largest since 2004, thanks to six discoveries, including in Senegal and the North Sea. Its reserve replacement ratio was estimated at 143 percent for the year.
The company’s refining and trading business, known as downstream, saw profits rise to $7 billion in 2017 as earnings for the marketing division rose by more than 10 percent.
Cash flow in the fourth quarter rose slightly to $6.2 billion, but fell short of market expectations, raising concerns that cost cuts have run their course and echoing concerns about rivals Royal Dutch Shell, Exxon Mobil and Chevron which reported last week.
The weakness was due mostly to lower-than-expected income from refining operations, BMO Capital Markets analyst Brendan Warn said.
Payments for the Deepwater Horizon spill continued to weigh on BP, which took a $1.7 billion charge in the quarter due to higher-than-expected claims settlements, bringing the total legal and clean-up costs to $65 billion.


Saudi Real Estate Refinance Co. plans up to $1.07bn sukuk sale this year

Updated 23 April 2019
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Saudi Real Estate Refinance Co. plans up to $1.07bn sukuk sale this year

  • The plan by SRC, a subsidiary of Saudi Arabia’s sovereign Public Investment Fund, comes as it prepares to purchase more home loan portfolios
  • SRC, formed in 2017, is also keen to tap foreign institutional investors for its debt sale this year

RIYADH: Saudi Real Estate Refinance Co. (SRC), modelled on US mortgage finance firm Fannie Mae, aims to issue up to 4 billion riyals ($1.07 billion) of long-term sukuk this year, its chief executive said on Tuesday.

The plan by SRC, a subsidiary of Saudi Arabia’s sovereign Public Investment Fund, comes as it prepares to purchase more home loan portfolios from mortgage financing companies and banks to boost the Kingdom’s secondary mortgage market.

SRC, formed in 2017, is also keen to tap foreign institutional investors for its debt sale this year, Fabrice Susini told Reuters in an interview.

“Our strategy is clearly to tap the market twice this year,” he said. “We are really looking at probably issuing something between ... 2 and 4 billion riyal that we may be issuing in two tranches.

He said SRC was looking at sukuk in the 10 to 15-year range, to help minimize refinancing risks. “Generally speaking we are trying to issue as long as possible,” Susini said.

He said the company was assessing whether it could also issue bonds in currencies other than the local riyal.

In March, SRC completed a 750 million riyal sukuk issue with multiple tenors, under a program that allows it to issue up to 11 billion riyals of local currency denominated Islamic bonds.

“The rule of the game for us is, like many projects across the Kingdom, attract liquidity from foreign investors,” Susini said.

He said SRC had spent 1.2 billion riyals from its balance sheet buying mortgages from local mortgage financing companies and provided liquidity to these firms.

It has also signed initial accords with several commercial banks to acquire housing mortgage portfolios.

Saudi Arabia’s housing ministry is targeting the mortgage market to reach a total value of 502 billion riyals by 2020 from around 300 billion riyals now.

The government wants to increase activity in the real estate market as it moves to revitalize the economy and is taking steps to reform the sector as part of its 2030 reform plan.

It has been working with developers and local banks to counter a shortage of affordable housing — one of the country’s biggest social and economic problems. Saudi Arabia wants 60 percent of its nationals to own homes by 2020, up from 47 percent in 2016.

The size of real estate financing relative to its gross domestic product is 5 percent in Saudi Arabia compared to 69 percent in the United States, 74 percent in the United Kingdom and 43 pct in Canada, the housing ministry has said.

“The goal of SRC in this market was to make sure that we will be able to refinance at least around 10 percent of the market in 2020, and 20 percent of the market by 2028,” Susini told Reuters.