BP sinks to loss in first quarter 2016

Oil major BP sank to a first-quarter loss of $583 million, compared with a profit of $2.6 billion a year ago, less than two weeks after its shareholders voted against the hefty salary package for the oil giant’s chief executive. 

Back in February 2016, BP reported its worst annual loss in at least 20 years as the British oil and gas company grappled with a collapse in oil prices.

After adjusting for a net charge for non-operating items of $778 million and net unfavorable fair value accounting effects of $239 million (both on a post-tax basis), the oil company’s underlying replacement cost profit for the first quarter of 2016 was $532 million, a sharp decline compared with $2.57 billion a year ago.

Cumulative restructuring charges from the beginning of the fourth quarter 2014 totaled $1.9 billion by the end of the first quarter 2016.

Compared with the previous quarter, lower costs throughout the Group more than offset the impact of significantly weaker oil and gas prices and refining margins, BP said on Tuesday.

Bob Dudley, BP group chief executive, said: “Despite the challenging environment, we are driving towards our near-term goal of rebalancing BP’s cash flows. Operational performance is strong and our work to reset costs has considerable momentum and is delivering results. Furthermore, development of our next wave of material upstream projects is well on track.”

Oil markets moving closer into balance

The Brent oil marker price averaged $34 a barrel in the quarter, compared with $44 in 4Q 2015 and $54 in 1Q 2015, and refining margins were at the lowest quarterly average for over five years. Brent prices have so far averaged $40 in the second quarter.

“Market fundamentals continue to suggest that the combination of robust demand and weak supply growth will move global oil markets closer into balance by the end of the year,” added Dudley.

BP on Tuesday announced an unchanged dividend for the quarter of 10c per ordinary share, expected to be paid in June.

Underlying operating cash flow in the first quarter was $3 billion. This excluded $1.1 billion of payments related to the Gulf of Mexico oil spill which were offset by divestment proceeds of $1.1 billion.

Operational performance continued to be strong with reliability of Upstream operated assets and refining availability both at 95%.

Lower capex

BP’s organic capital expenditure in the first quarter was $3.9 billion compared to $4.4 billion in the first quarter of 2015. BP now expects total organic capital expenditure in 2016 to be around $17 billion and, in the event of continued low oil prices, sees flexibility to move to $15-17 billion in 2017.

Costs are also reducing; BP’s cash costs over the last four quarters were $4.6 billion lower than in 2014. BP expects cash costs for 2017 to be $7 billion lower than for 2014.

Brian Gilvary, chief financial officer, said: “As we steadily take out more costs, the point at which we expect to be able to rebalance 2017 organic sources and uses of cash continues to move lower; we currently anticipate being able to achieve this at oil prices in the range $50-55 a barrel. This progress underpins our commitment to sustaining BP’s dividend as the first priority within our financial frame. Should prices remain low, we have the flexibility to adjust further within the financial framework.”

BP’s Upstream segment reported an underlying pre-tax replacement cost loss of $747 million for the quarter, broadly similar to the previous quarter’s result. Lower costs, including the benefits of simplification programs and lower exploration write-offs, largely offset the impact of lower oil and gas prices, BP said. BP reported $66 million as its estimated share of Rosneft earnings for the quarter, compared with $235 million in the previous quarter.

BP’s overall production of oil and gas, including Rosneft, was 3.5 million barrels of oil and gas equivalent a day (mmboe/d). Excluding Rosneft, BP’s Upstream production was 2.4 mmboe/d, 5.2% higher than a year earlier.

According to the company, its major developments of Quad 204 and Clair Ridge in the UK, Khazzan Phase 1 in Oman, Juniper in Trinidad, the Taurus/Libra phase of the West Nile Delta project in Egypt and Shah Deniz Phase 2 in Azerbaijan are all on track. BP expects projects scheduled to start up through 2016 and 2017 will put in place 500,000 boe/d of new net production capacity by the end of 2017 compared to 2015.

Deepwater Horizon developments

In the US, in April the Court entered the final judgment on the Consent Decree relating to the settlement of federal and state claims arising from the Deepwater Horizon incident and both the Consent Decree and settlement agreement are now effective.

A charge of $0.9 billion related to the 2010 oil spill was taken in the quarter bringing the total pre-tax cumulative charge related to the event to $56.4 billion. The charge for the quarter included around $0.6 billion related to business economic loss claims not previously provided for, as well as costs relating to the settlement of certain civil claims outside of the 2012 settlement with the Plaintiffs’ Steering Committee.

BP has agreed simplified and accelerated procedures for processing business economic loss claims which is reflected in the quarter’s charge. However, BP said, it is still not possible to reliably estimate the remaining liability for these claims and BP continues to review this each quarter.

The $1.1 billion pre-tax cash outflow related to the oil spill in the quarter included $530 million related to the 2012 criminal settlement.