Analyst Note| Allen Good, CFA |
BP delivered another strong quarter thanks to high commodity prices while demonstrating the continued execution of its long-term transition strategy. Adjusted earnings soared to $3.3 billion from $86 million a year ago largely on higher commodity prices. Operating cash flow during the quarter increased to $6.0 billion from $5.2 billion a year ago but includes a $1.8 billion working capital build compared with a $1.2 billion release last year. Net debt continued to fall to $32.0 billion from $32.7 billon at the end of the second quarter. After repurchasing $1.4 billion since the second-quarter earnings announcement, BP announced it plans to repurchase another $1.25 billion before the announcement of fourth-quarter results. The amount is greater than BP’s actual surplus cash generation, but management is confident in the company’s execution and outlook given the current environment. It continues to expect to repurchase $1 billion in shares per quarter assuming $60/bbl. Our fair value estimate and moat rating are unchanged.