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Gulf disaster bill now $44 billion

Dudley ‘rebalancing’ BP for lower oil price as profits slump

Bob DudleyBP’s profits fell 20% in the first quarter of 2015, indicating the challenge faced by chief executive Bob Dudley to turn around the troubled oil giant.

Underlying replacement cost profit for the quarter was $2.6 billion compared with $3.2 billion for the same period in 2014 and $2.2 billion for the fourth quarter of 2014. 

“We are resetting and rebalancing BP to meet the challenges of a possible period of sustained lower prices,” said Mr Dudley.

“Our results today reflect both this weaker environment and the actions we are taking in response. We are continuing to progress our planned divestment programme, we are resetting our level of capital spending, and we are addressing costs through focusing on simplification and efficiency throughout BP.”

He noted the fall in oil and gas prices in the quarter. Brent crude averaged $54 per barrel compared with $108 in 1Q 2014.

BP has sold $7.1 billion of assets, including its interest in the North Sea pipeline announced last week, and is on track to sell a further $10 billion of assets by the end of this year.

The company revealed that the Gulf of Mexico oil spill had so far cost the company $43.8 billion. An additional charge of $332 million was taken in the quarter.

Capital expenditure in the first quarter was $4.4 billion.  “We will also look to take advantage of any opportunities presented by the lower price environment to further reduce capital expenditure or costs,” added Mr Dudley.

Operating cash flow for the quarter was $1.9 billion compared with $8.2 billion a year earlier. The quarter’s operating cash flow included a working capital build of $2.5 billion. At the end of the quarter BP’s net debt was $25.1 billion, equivalent to a gearing level of 18.4%.

The company declared a standstill quarterly dividend of 10 cents per ordinary share, expected to be paid in June.

Mr Dudley said: “The dividend is the first priority within our financial framework and the board is committed to maintaining it, as we have today. We can sustain this by successfully resetting our capital and cost base and rebalancing our sources and uses of cash in the prevailing oil price environment. We will continue to review progress on this as we move through the year.”

BP’s Upstream segment reported underlying pre-tax replacement cost profit of $0.6 billion for the first quarter of 2015 compared with $4.4 billion for 1Q 2014.  The result included a $545 million loss for BP’s US Upstream business.

As expected, the Upstream result was significantly affected by lower oil and gas prices as well as weaker gas marketing and trading and $375 million costs associated with the cancellation of contracts for two deepwater rigs in the Gulf of Mexico no longer required for BP’s reset drilling programme. This was partly offset by the positive impacts of higher oil and gas production, lower exploration write-offs, and also cost benefits from simplification and efficiency work throughout the segment.

Overall Group oil and gas production, including Russia, was 3.3 million barrels of oil equivalent a day (mmboe/d). Excluding Russia, reported Upstream production of 2.3 mmboe/d was 8.3% higher than a year earlier and underlying production3 3.7% higher. Production increases were primarily due to the ramp up of production from new projects in key regions. 

Underlying pre-tax replacement cost profit for BP’s downstream segment was $2.2 billion for the quarter, compared with $1.0 billion in 1Q 2014. The result reflects the stronger overall refining environment, increased refining optimisation and production, and improved marketing performance. There was also a stronger contribution from supply and trading than a year earlier. Simplification and efficiency programmes also contributed to lower costs in the downstream.

Estimated underlying net income from Rosneft was $183 million compared with $270 million in 1Q 2014.

BP’s first quarter result included a one-off, non-cash, deferred tax credit as a result of the reduction in the rate of the UK North Sea supplementary charge, announced in March; the opposite effect was reported in 2011 when the supplementary charge was increased.

The quarter’s result also included a further $215 million non-operating restructuring charge; bringing total restructuring charges to $648 million compared with an estimated total of $1.0 billion BP expects to take before the end of 2015.

In the first quarter BP announced the Atoll gas discovery and also signed final agreements for the major $12 billion West Nile Delta gas project, both offshore Egypt. The new advanced technology purified terephthalic acid (PTA) plant in Zhuhai, China – which will add over one million tonnes a year of PTA capacity with an advantaged cost position – started up in March.

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