By Sarah McFarlane 

LONDON -- BP PLC reported a fifth consecutive quarterly loss on Tuesday, providing the first glimpse of how major oil companies navigated the third quarter amid a prolonged slump in demand triggered by the coronavirus pandemic.

The loss follows one of the worst second quarters ever for the sector, in which BP halved its dividend and cut jobs. In the third quarter, oil prices stabilized at around $40 a barrel after diving earlier in the year. Still, prices remain around a third below where they were in the same period a year earlier.

BP's earnings also suffered from lower refining margins and weaker trading results. Trading had provided a bright spot in the previous quarterly earnings for BP, Royal Dutch Shell PLC and Total SE, but lower volatility in the quarter ended Sept. 30 reduced trading opportunities.

Other major oil companies are expected to report another weak quarter, with Shell and Exxon Mobil Corp. having already flagged expected losses in their oil-and-gas production businesses in recent weeks.

Shell is due to report its earnings on Thursday, followed by Chevron Corp. and Exxon on Friday.

Refining and trading sometimes offer some relief to major oil companies during times of lower energy prices but recently even these areas haven't been as profitable. Refining margins have in the past risen when oil prices have fallen, but Covid-19's decimation of fuel demand meant this didn't happen.

"Oil prices went down but refineries couldn't get the product away to the market, people weren't flying, people weren't driving," said Murray Auchincloss, BP's chief financial officer, in an interview.

BP said that the outlook for trading and refining margins remained challenging due to Covid-19, with record-high inventories and a leveling off in demand for gasoline and jet fuel.

The company reported a replacement cost loss -- a metric similar to the net income figure that U.S. oil companies report -- of $644 million for the three months ended Sept. 30, from a loss of $351 million in the year-earlier period.

It is the first set of earnings for the British company since it gave details of a wide-ranging revamp to become less dependent on oil, while increasing investments in renewables and other low-carbon energy sources over the next decade, at an event last month.

That shift hasn't eased investor worry. The company's shares are trading near a 25-year low and have underperformed their peers in recent months.

"While the results were better than expected, they are still extremely weak and it is far too early to anticipate a change in market evaluation of BP's likely future performance under its radical new strategy," said Colin Smith, an analyst at Panmure Gordon.

BP's gearing -- the ratio of net debt to the total of net debt and equity -- was in line with the previous quarter at 37.7% including leases in the three months to Sept. 30. It remained above the company's target of 20% to 30%.

The company's net debt fell slightly to $40.4 billion, from $40.9 billion at the end of June.

When BP halved its dividend in August, the company said that it would return at least 60% of surplus cash as share buybacks once debt is below $35 billion.

"I would expect we'll move into buyback territory somewhere around 4Q 2021, 1Q 2022," said BP's Mr. Auchincloss, adding this was based on a Brent oil price of $45 to $50 a barrel.

The company plans to sell $25 billion of its assets by 2025 and has already achieved around half of the target, including recent sales of its Alaska business and its chemicals unit.

Net debt is expected to fall in the fourth quarter as proceeds from the sales are received.

BP's shares traded down 0.1% on Tuesday.

Write to Sarah McFarlane at sarah.mcfarlane@wsj.com

 

(END) Dow Jones Newswires

October 27, 2020 08:36 ET (12:36 GMT)

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