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BP slashes investment plans as it reveals £645m loss
BP slashes billions from investment plans as it reveals £645m loss
(about 1 hour later)
BP slumped to a 969 million US dollar (£645 million) loss in the final quarter of 2014 as boss Bob Dudley said the company faced a "challenging phase of low oil prices".
BP and BG Group slashed $9 billion (£5.98 billion) from their capital-spending plans today, bringing the total cuts to planned investment by oil majors to $35 billion as the price of “black gold” continues to languish.
Mr Dudley said the focus was on "resetting" BP for the new reality of lower prices as he slashed investment plans for 2015 by as much as 6 billion US dollars (£4 billion).
The FTSE 100 giants posted huge damage from the slump — between them announcing fourth-quarter losses of nearly $9 billion on the back of $12.5 billion of writedowns.
The replacement cost loss compares with a profit of 1.51 billion US dollars (£1 billion) for the same period last year.
The duo signalled they expect a prolonged period of subdued prices as they slashed investment budgets — BP by up to $6 billion and BG by as much as $3 billion.
On an underlying basis, BP's replacement cost profit for the final three months of 2014 was 2.24 billion US dollars (£1.49 billion).
Shell and US giant ConocoPhillips reduced their 2015 spending by $15 billion and $5.6 billion, respectively. Chevron also cut back its investment, by $5 billion to $35 billion.
But this was dragged down by a 3.6 billion US dollar (£2.4 billion) charge to account for factors including the "near-term lower oil price environment".
BP announced a $969m fourth quarter loss today after taking a $3.6bn charge for the period. This was mostly to “reflect the impact of the near-term lower oil price environment” – which has seen the price slump more than 50% since June to about $55 a barrel.
The price of a barrel of Brent crude has slumped by more than half since last summer and fell to nearly 45 US dollars last month though it has seen a partial rebound in recent days to 55 US dollars.
A view of the BP ETAP (Eastern Trough Area Project) oil platform in the North Sea, around 100 miles east of Aberdeen This compared to a $1.5bn profit a year earlier – when the average price of oil was $109 a barrel, compared to $77 in the final quarter of 2014.
Mr Dudley said: "We have now entered a new and challenging phase of low oil prices through the near and medium term.
Capital expenditure this year will be cut by about a fifth, from the $24-26bn previously indicated to about $20bn.
A view of the BP ETAP (Eastern Trough Area Project) oil platform in the North Sea, around 100 miles east of Aberdeen "Our focus must now be on resetting BP: managing and rebalancing our capital programme and cost base for the new reality of lower prices while always maintaining safe, reliable and efficient operations."
“We have now entered a new and challenging phase of low oil prices through the near and medium term,” said Bob Dudley.
Annual replacement cost profit for 2014 was down 66 per cent to 8.07 billion US dollars (£5.37 billion), while on an underlying basis it was down 10 per cent to 12.14 billion US dollars (£8.08 billion).
“Our focus must now be on resetting BP: managing and rebalancing our capital programme and cost base for the new reality of lower prices while always maintaining safe, reliable and efficient operations,” Dudley added.
Despite the loss for the latest period, the oil giant - a mainstay of UK pension funds - announced a quarterly dividend of 10 cents (6.7p) per share, to be paid in March.
BG Group, the oil and gas production arm of the former British Gas, has fared even worse than BP amid the falling prices.
Mr Dudley said: "Throughout the work to reset BP, the dividend remains the first priority within our financial framework."
The group announced a $7.9bn loss for the fourth quarter as falling hydrocarbon prices forced it to take an $8.9bn writedown. It also slashed capital expenditure to between $6bn and $7bn – from $8 to $10bn previously.
The company said it was "now taking action to respond to the likelihood of oil prices remaining low into the medium term".
“The sharp deterioration in commodity prices in the second half of the year has led us to recognise significant asset impairment charges in the fourth quarter,” said the group’s interim executive chairman Andrew Gould.
Shares responded positively, climbing by 6 per cent on opening.
“In the new environment we are well placed to manage the downturn…We will proactively manage our costs, both capital and operating, to adapt to new business circumstances,” he added.
BP said it planned to reduce spending on exploration and postpone projects in its upstream business - which includes oil and natural gas field development, production, storage and processing.
Mr Gould is holding the fort following Chris Finlayson’s resignation last April after a difficult period at the company.
It will also mothball some projects in its downstream operations - the part of the business that includes refineries and manufacturing as well as fuel marketing and global oil supply.
He will be replaced “shortly” by former Statoil boss Helge Lund, whose lucrative remuneration package was revised in December after a shareholder backlash. The company has not given his start date.
As a result capital expenditure will total 20 billion US dollars (£13 billion) this year, a fifth lower than previous guidance of 24-26 billion US dollars (£16-17 billion), the group said.
The recent round of investment cuts is helping the price of Brent Crude, which rose by 0.80p a barrel to £55.55 today.
BP also said it would continue its divestments, of which it has agreed 4.7 billion (£3.1 billion) since 2013, with the total expected to double to 10 billion US dollars (£6.7 billion) by the end of 2015.
Shares in BP rose by 16.0p to 453.50p because the fourth quarter result was better than expected. BG ticked up 4.3p to 939.80p.
It added that total cash costs for last year fell by more than 1 billion US dollars (£670 million) and it was "in action to deliver further efficiencies in 2015".
The company, which employs 15,000 people in the UK, said last month that it would cut 300 North Sea jobs following a review of its operations.
BP's results come a day after US rival Exxon Mobile said fourth quarter earnings fell by 21 per cent due to the sharp slump in oil prices.
* BP helped the FTSE 100 Index to rally by more than 1 per cent after its results for the final quarter of 2014 came in ahead of City expectations. The performance was at the top end of expectations and with BP also maintaining its dividend, shares surged by more than 3 per cent or 15.7p to 453.2p.
The FTSE 100 Index was up by 82.8 points to 6865.3, with commodity-based stocks buoyed by the BP figures and a recent surge in energy prices after Brent crude rose back above 55 US dollars a barrel.
