Oil giant 'rebalancing' to new climate
BP to slash spending by $6 billion as profits slip on oil price collapse
BP said it would cut its exploration spending by up to $6 billion and delay marginal projects after profits fell in the fourth quarter as a result of the declining oil price and slump in the value of the Russian rouble.
The underlying replacement cost profit, a preferred measure by analysts, fell from $2.8 billion in 2013 to $2.2 billion in the corresponding period last year.
Over the year profits reduced from $13.4 billion to $12.1bn. The company took an $819m charge relating to the Gulf of Mexico spill.
Bob Dudley, chief executive, said: “We have now entered a new and challenging phase of low oil prices through the near and medium term. 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.”
As expected the company has protected shareholders by declaring a quarterly dividend of 10 cents a share to be paid on 27 March. The corresponding amount in sterling will be announced on 16 March.
“Throughout the work to reset BP, the dividend remains the first priority within our financial framework,” Dudley confirmed.
BP is now taking action to respond to the likelihood of oil prices remaining low into the medium term and to rebalance its sources and uses of cash accordingly.
This year the company plans to reduce exploration expenditure and postpone marginal projects in the Upstream, and not advance selected projects in the Downstream and other areas.
Capital expenditure in 2015 is expected to be about $20bn, significantly lower than previous guidance of $24-26bn. Total capital expenditure last year was $22.9bn, lower than initial guidance of $24-25bn.
Since 2013 BP has sold $4.7bn of assets and continues to expect this divestment total to reach $10bn by the end of 2015.
Net debt at the end of the year stood at $22.6bn, equivalent to a gearing level of 16.7%. BP intends to maintain gearing within its existing target range of 10-20%.
BP said it had made $1bn of cuts in 2014 and is seeking further efficiencies in 2015. The fourth quarter results include almost $450 million in restructuring charges, taken as a non-operating item.
Estimated underlying net income from Rosneft was $470 million compared with $1.1 billion in 4Q 2013. Results were affected by lower oil prices, unfavourable duty lag effects and other items, partly offset by foreign exchange effects.
Total Group operating cashflow in the fourth quarter was $7.2 billion. For the full year 2014, total operating cash flow was $32.8 billion.
BP has gained new exploration access in the North Sea, Gulf of Mexico and Egypt; and in December signed a production sharing agreement with SOCAR of Azerbaijan for exploration and potential development in the shallow water around the Absheron Peninsula in the Caspian Sea.