BP Debt Keeps Rising

BP Plc’s net debt rose again in the first quarter, reaching the highest level in at least a decade as payments linked to the Gulf of Mexico oil spill countered an almost threefold jump in profit.

The increase in borrowing shows how BP’s commitments, which on top of dividends include billions of dollars in payments related to the 2010 spill, are preventing it from benefiting fully from crude’s recovery, Bloomberg reported.

Yet the company has pledged a return to growth after drawing a line under the penalties that followed the US disaster.

“Debt will rise in the first and second quarters to cover the Gulf of Mexico payments,” Chief Financial Officer Brian Gilvary said Tuesday in a phone interview. Borrowings will “ease out” in the second half, he said.

Competitors Exxon Mobil Corp., Chevron Corp. and Total SA beat profit estimates last week, benefiting from oil prices that were more than 50% higher in the quarter than a year earlier.

“It was a robust and a good quarter to have under the belt,” Gilvary said. “If oil stays around $50 to $55 this year, we will be able to balance our cash,” he said, referring to the breakeven level at which the company can cover spending and dividends without borrowing.

Debt may be approaching a peak. BP paid out $2.3 billion to cover spill liabilities in the first three months of 2017, about half the expected $4.5 billion to $5.5 billion for the year. Cash flow from operations rose and the company predicts a further increase this year as new projects start, though oil’s rally has stalled.

BP climbed as much as 3% in London trading on Tuesday. The stock has dropped 12% this year compared with a 4.2% decline in the Stoxx Europe 600 Oil & Gas Index.

BP’s capital spending was $3.5 billion in the first quarter and it paid out about $1.3 billion in cash as dividends. Although its $4.4 billion of cash from operations failed to cover that outlay, the company expects “a material improvement in operating cash flow from the second half,” Chief Executive Officer Bob Dudley said in a statement.