BP swings to profit as oil sector shakes off woes

BP PLC BP 1.68% was the latest big oil company to report a sharp increase in profit Tuesday, adding to optimism that the sector may have passed the worst following the dramatic slump in energy prices.

The British oil giant said it swung to profit in the first quarter, benefiting from a roughly 60% increase in prices since the first quarter of 2016 and higher production volumes.

The results were the latest in a flurry of upbeat earnings from the world’s biggest oil companies, several of which have enjoyed their most successful quarter in more than a year. The improvement has left investors hopeful that the sector may be recovering following the tumble in oil prices after the summer of 2014.

Last week, Exxon Mobil Corp. reported its best quarter since 2015. Chevron Corp. posted a profit of $2.7 billion, after reporting a loss for 2016 and France’s Total SA said its profit surged 77% in the first three months of 2017. Royal Dutch Shell PLC is due to report later this week.

BP said Tuesday its replacement cost profit—a number analogous to the net income that U.S. oil companies report—was $1.4 billion in the first quarter, compared with a loss of $485 million in the comparable period a year earlier.

The results were some of the company’s strongest since it announced a massive $20 billion deal to settle outstanding claims relating to its Gulf of Mexico blowout.

The company’s share price jumped 2.4% in early London trading as investors reacted positively to the results.

The pretax bill for the 2010 disaster that killed 11 workers and spilled millions of barrels of oil into the sea has reached nearly $63 billion, BP said.

The payments relating to the spill are expected to total between $4.5 billion and $5.5 billion in 2017, before falling to around $2 billion in 2018.

The company reported robust operating cash flow in the first quarter, which is expected to continue to improve. Excluding payments related to the oil spill, the company’s cash flow from operations improved to $4.4 billion in the first quarter, helping it maintain a dividend of 10 cents a share.

This will reassure investors, who received a jolt in February when the company said it needed oil prices to rise to $60 a barrel to break even. That number is expected to drift closer to $55 a barrel in 2017. Cash flow is also seen strengthening as part of BP’s plan to bring on seven new projects this year.

The company sees oil trading at $50-$55 a barrel in 2017, likely capped by stronger shale production in the U.S., Chief Financial Officer Brian Gilvary said, despite efforts by the Organization of the Petroleum Exporting Countries to curb output and boost prices.