British BP’s and American ConocoPhillips’ Strongs Earnings Underpin Rapid Recovery of Entire Energy Sector

The strength of the energy sector at the moment is obvious: news about most energy prices reaching their historic highs keeps coming almost on daily basis. The most recent strong earnings reports are the same from British BP (BP) and American ConocoPhillips (COP).

When it comes to BP, the rally is set to continue, with the company announcing the continuation of its buyback program for the rest of the year well above its surplus cash level in Q3. Basically, one of the most punished global oil companies during the recession now turns out to become, as some analysts assert, a sort of a “cash machine at these prices”. The company’s gas traders had made $500 million windfall profits from skyrocketing prices in recent months. BP’s share is up over 33% year-to-date, to 347 p on Lo.

Shareholders will get a share of $1.25 billion (£920 million), following quickly on from the $1.4 billion program announced after its freshly published quarterly results. Unlike last quarter, the buyback figure was above BP’s surplus cash for the period, which uses the company’s formula would have given $540 million of buybacks. The company also registered a $2.5 billion loss for the period but this was largely down to a gas price-driven non-cash accounting hit of $6.1 billion based on changes to forecasts. BP’s preferred profit measure, underlying replacement cost profit, was 18% above the previous quarter at $3.3 billion.

In the same fashion, although ConocoPhillips (COP) so far did not disclose a revenue result, its Q3 net income swung to a $2.4 billion profit from a year-ago loss of $500 million; while cash flow from operations came in at an eye-popping $4.8 billion. Q3 production excluding Libya jumped 41% YoY to 1.51 million boe (barrels of oil equivalent)/day; after adjusting for closed acquisitions and dispositions, production rose 2%. Conoco's Q3 total average realized price was $56.92/boe, 84% higher than the $30.94/boe realized in the year-ago quarter. The company’s management said during recent investors’ call that "as [the company’s] production remains unhedged and thus realizes the benefit of higher marker prices."