BP’s 1Q results show refining strength + tax one-offs

BP’s first-quarter results came in slightly better than expected; however this was largely thanks to one-off positive UK tax effects (as BP booked the benefit of the North Sea tax reduction in the quarter) rather than stronger underlying performance.

BP’s upstream profits were hit by lower oil and gas prices as well as break fees for two deepwater rig contracts in the US Gulf of Mexico, which sent BP’s US upstream business into a loss. Rig cancellation costs are likely to show up in other majors’ results this quarter, as all majors rein in offshore drilling activity.

On a positive note, BP appears successful at cutting costs as it took a number of simplification and efficiency measures early and aggressively, but this is not yet enough to offset the weaker macro.

Results were also boosted by a buoyant downstream, once again demonstrating the value of integration. Majors with high downstream exposure such as Shell, Total or Exxon should benefit from the strong global refining environment, which BP expects to last into the second quarter.