Earlier this year BP management raised the price it needed oil prices to be to $60 a barrel to break even, after reporting an annual loss of $542m in its oil and gas upstream division at the end of the last fiscal year.
Though Brent crude prices did get close to that $60 level in February they have struggled ever since, despite the output freeze by OPEC that is due to be reviewed later this month.
Today’s Q1 results are encouraging with a £1.45bn profit as production starts at a number of new upstream projects, including in Egypt, in the West Nile Delta.
Revenue came in well above expectations at $55.5bn and the company kept its quarterly dividend unchanged at $0.10c a share, which equates to a yield of nearly 7%, against a dividend cover that isn’t anywhere near the level needed to be sustainable.
The overriding worry remains debt which continues to rise, up to $38.6bn from $30bn a year ago, and while BP has managed to return to profit due to improving revenues, cost cutting, and divestments that breakeven oil price may need to come down further, or the company will start to have to look at cutting the dividend.
For several quarters the company hasn’t even got close to covering the dividend, and while interest rates remain low that may be sustainable in the short term, it’s certainly not sustainable on a long term basis, which means something may well have to give, if margins don't improve.
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