Sixty is the magic number, at least for BP. The oil firm has drawn up its financial plan for the next two years and it revolves around the price of oil settling at around $60 per barrel.
There is a slight problem with this – in the past three months the average price of a barrel was about $50. However, that did not stop boss Bob Dudley hailing the company’s decisiveness in its third quarter results.
In a perverse sense, the Deepwater Horizon disaster has done BP a favour. The cost of the 2010 oil spill and the pressure it put on the company mean that BP had already sold nearly $50bn (£33bn) of assets by the time the price of oil crashed last year.
Many of these assets were sold with the price of oil above $100, so the outcome was far better than if the company had been forced to cut back now.
However, as BP cuts capital expenditure to between $17bn and $19bn a year, compared with predictions of $24bn to $26bn a year ago, unsettling questions remain about its future.
While Dudley and his highly regarded chief financial officer, Brian Gilvary, have steadied the ship, what comes next and what is left?
The company has some exciting projects in the pipeline, including further sites in the Gulf of Mexico, and BP claims that 80% of the projects it is yet to start can make money with the price of oil at $60 per barrel.
Yet BP is surely taking a gamble by steadfastly refusing to cut its dividend and instead reducing capital expenditure to adjust to the new world. Spending has already been scaled back dramatically, owing to Deepwater Horizon.
BP may be one of the world’s biggest dividend payers, but pension funds are likely to curse disappointing growth in the long term more than a short-term cut to the dividend to cope with extraordinary oil-price fluctuations. In any other sector, we would think that management was mad.
VW driving into unchartered territory
Volkswagen posts its own third-quarter results on Wednesday 28 October, and – surprise, surprise – they are likely to be shocking.
The world’s second biggest carmaker is expected to post its first quarterly loss in more than 15 years. The consensus among analysts is that VW will report an operating loss of €3.3bn (£2.4bn), down from a profit of €3.2bn a year ago, according to Bloomberg.
However, more interesting than the numbers will be the comments from new boss, Michael Mueller, as he faces the media and investors for the first time.
First, Mueller could offer his thoughts on the total cost of the scandal to VW. The third-quarter loss is the result of a €6.5bn charge VW has booked to meet the cost of the diesel-emissions scandal, but the company has already admitted this will not be enough.
The charge suggests that the cost to VW will be less than €600 for every car affected, which is laughable given that some of the vehicles require hardware charges and the company faces big compensation claims. Moody’s, the credit-rating agency, has said the cost to VW will eventually be between €9.5bn and €31bn.
But second, the fact that Mueller will talk at all is interesting. His predecessor, Martin Winterkorn, who quit as a result of the emissions scandal, used to get his chief financial officer to answers questions on results day.
That says it all about the shocking corporate governance at VW before it was dragged to its knees.
Carpetright laying the foundations
Forget GDP and the boffins over at the Office for National Statistics, the real bellwether for the British economy is Carpetright.
Ask most retail bosses and they will tell you that the growth in GDP over the last couple of years has not really translated to the high street. Household incomes have remained squeezed and trading has been tough, including for Carpetright.
However, Carpetright’s latest figures show that like-for-like sales rose 4% in the six months to the end of October.
This boost is partly due to self-help measures such as closing stores – including 22 in the first half of its financial year – and introducing interest-free credit.
However, this performance was against a strong uptick in the same period last year – when the self-help measures kicked in – and total sales for Carpetright still rose 2.5% despite the fact that it operated from fewer stores.
This suggests that new homeowners are investing in their homes, but also that existing owners are willing to modernise their properties. After Travis Perkins warned of a potential slowdown in DIY last week, this is welcome news about consumer confidence.
