US Edition BP
431.65p +7.65
Questor says BUY
Profitability came despite a significant amount of its output in the Gulf of Mexico still being shut in following the Macondo oil spill in April.
Higher oil and gas prices helped the energy giant deliver a third-quarter replacement cost profit, which strips out unrealised gains or losses related to changes in the value of fuel inventories, of $1.85bn (£1.2bn), compared with a record $17bn loss in the second quarter.
If the costs of the spill are stripped out, profits rose 18pc compared with the third quarter of last year. The results were ahead of expectations, boosted by higher oil prices, a lower tax rate and an improvement in its refining operations.
The company increased its provisions for the oil spill by $7.7bn to almost $40bn, which includes the $20bn held in escrow by the US government.
Many investors held the shares for its dividend and a resumption of this payment is important for them. Indeed, between them, BP and Shell have been paying out more than a fifth of the dividend payments in the FTSE 100 for some time.
Following the spill and the agreement to establish the $20bn escrow account, the BP board decided to cancel its already announced first-quarter dividend, which was scheduled for payment on June 21.
Payments were suspended for the interim and third quarter and management will "consider its position on future ordinary share dividend payments again in February 2011, at the time of its fourth-quarter 2010 results".
Questor has said before that investors should not expect the dividend will be restarted at the same level it was previously. Indeed, BP was effectively held hostage to its dividend payments during the recession as its cash flow plunged. The company was forced to borrow to meet its dividend commitments through this period.
If dividends are started in the fourth quarter, they are likely to be rebased. The market expects that this will be the case too. In 2009, the payment was 56 cents. Bloomberg consensus for 2011 expects the payment to be 42.8 cents.
The company also unveiled an asset-disposal plan and the group has agreements in place for about $14bn of sales. The sales will reduce production by about 100,000 barrels of oil per day in the fourth quarter, compared with output of 3.76bn barrels of oil equivalent (boe) in the third quarter.
The shares are trading on a December 2010 earnings multiple of 6.5 times, falling to 6.2 next year. They were first tipped at 487½p on February 4 last year and they are down 11pc compared with a market up 36pc. Although the dividend is likely to be rebased, the prospective yield is still 6.2pc in 2011.
The shares are a buy.