As EY issues report on prospects...
BP ‘more resilient’ but falls short of profits target
The oil giant’s underlying replacement cost profit, the company’s preferred measure, fell to $400 million, against guidance of $560m but better than $196m a year earlier.
It produced a full-year profit of $2.6 billion, 56% lower than the previous year.
It said it expected 2017 production to rise due to a string of new projects coming on stream, but warned that OPEC’s decision to cut production may impact final output.
BP made a £1bn loss at the reported level for 2016, which was a big improvement on the $5.16bn in 2015.
The quarterly dividend was unchanged at 10 cents per share.
It said it expected to balance its books by the end of the year at an average oil price of around $60 per barrel, with capital expenditure now guided to the higher end of its previous guidance at $16-$17bn.
Chief executive Bob Dudley (pictured) said: “2016 was the year we made significant strides in creating a stronger platform for growth.”
He pointed to the launch of six major project start-ups and final investment decisions on a further five major projects.
“We have delivered solid results in tough conditions – and are well prepared for any volatility in oil pricing. We have adapted by cutting our controllable cash costs by $7bn from 2014 – a full year earlier than planned.
“Continued tight discipline on costs remains essential. Everything we have done during the year has made us a more resilient and competitive company.”
After paying $7.1bn related to the Gulf of Mexico oil spill during the year, Mr Dudley said these liabilities were now “substantially behind us” enabling BP to be “fully focused on the future”.
Shift to long-term focus needed for oil sector
Its Review of the UK oilfield services industry reveals that the overall annual turnover of UK OFS declined for the first time since the EY review started in 2008, from £40.6bn in 2014 to £35.7bn in 2015 (-12.2%).
EY’s data also shows that 2015 was the first time that the turnover of each of the OFS supply chain categories (reservoirs, wells, facilities, marine and subsea and support and services) fell in one year.
Although the data has shown a decline in activity, the analysis indicates that the stabilisation of the oil price in the $50 – $60 region and the early signs of new investment provide grounds for cautious optimism.
Derek Leith, EY Partner and Head of Oil and Gas Tax, said: “With the worst of the downturn over and signs of recovery becoming more prevalent, the UK oil and gas sector has reached tipping point with the supply chain playing a pivotal role. As such, the future viability of the oilfield services industry will be largely determined by the decisions and actions taken by leaders in 2017.
“It is essential that the hard-won benefits achieved by oilfield services companies as a result of the unforgiving low oil price environment, such as greater efficiencies and innovative approaches, are sustained and not abandoned as the oil price starts to recover.
“It may be that the current oil price will prevail for the foreseeable future, so the oilfield services industry must push beyond cost reduction to higher margin sustainable business. This needs to be characterised by new commercial relationships, new technology and innovation.
“The UK oilfield services industry demonstrated its credentials as a global leader by employing agility and courage during the last two years. There is now the potential to grow further both domestically and internationally, but these opportunities are unlikely to be realised unless strategies shift in focus from short-term survival to long-term success.”
Exports and decommissioning
Mr Leith said: “Decommissioning offers the UK oilfield services industry an excellent opportunity to grow a significant line of business with huge export potential. The UK supply chain must offer high quality, cost-effective goods and services if they are to succeed in the fiercely competitive global market.
Themes for 2017
Consolidations and strategic alliances look set to become an increasing trend in 2017, particularly in high-cost areas of development such as marine and subsea, according to the report.
Industry-wide consolidation is likely to be driven by larger players with healthy balance sheets seeking strategic acquisitions in order to: expand their integrated services via new technology, increase their international footprint or reduce risk by diversifying into other markets. Financial stress is also likely to force consolidation.
The report also says there are positive signs that 2017 will attract more, but still modest levels, of capital expenditure.
Mr Leith said: “It would be premature to suggest that capital expenditure is set to recover dramatically this year. As one of the world’s higher cost basins, a significant increase to exploration and development spend in the North Sea would be regarded as bullish in the current environment.
“Despite this, there are encouraging signs in the form of new sources of capital taking ownership of assets, including the eventual arrival of much anticipated private equity investment in the second half of 2016.
“Such investment not only shows faith in the long-term prospects for profitable recovery of oil and gas in the North Sea, it should also signal the arrival of some much needed investment to further improve productivity and reduce the operating costs of North Sea assets.
“Despite the decision by some of the oil majors to offload UK assets, new entrants have not been averse to acquiring assets with development potential, reflecting their belief that attractive returns can still be achieved over time.”