BP reported sharply lower earnings for the first quarter of the year as the effect of lower oil and gas prices were felt, especially in the US where the company reported a loss in its upstream business.
BP reported an underlying replacement cost profit (which strips out the effects of inventory valuation and various other erratic financial effects) of US$2.6 billion for the first quarter of the year, down 19 per cent on a year earlier.
Total revenue for the quarter was down 41 per cent compared to last year, at $55bn. A more than doubling in the underlying profit for downstream — which includes refining — to $2.2bn was not enough to compensate for a huge slump in upstream profit, from last year’s first quarter profit of $4.4bn to just $600 million in the first three months.
Brian Gilvary, BP's chief financial officer, said that the outlook for the oil and gas market still remained "challenging", and the company was not expecting a rebound in prices any time soon. However, he also said that BP was reaping the benefit of lower industry costs, including much lower rates for oil rigs, as well as the effects of large-scale job cuts.
BP has been cutting costs longer and by more than its peers because of the after-effects of its Gulf of Mexico oil spill disaster five years ago, when an explosion on its Macondo platform killed 11 workers and spilled hundreds of millions of gallons of oil into the sea.
The huge compensation bill forced BP to sell off billions in dollars of assets, massively reducing its presence and staff numbers. The trend has deepened as oil prices slumped.
Mr Gilvary said that job cuts at BP since 2012 have reached 3,500, with a further 800 jobs lost in the first quarter.
“We expect to see more of that,” Mr Gilvary said. “It is a painful process but we are trying to treat people fairly and equitably.”
He said that the job losses are being seen “across the piece” — in upstream, downstream and corporate — and that many are owing to asset disposals the company has been making. In all, BP had sold off $38bn in assets by the end of 2013 and targeted a further $10bn by the end of this year. Mr Gilvary said that, so far, just over $7bn of assets had been sold under that programme, including the sale of a 40 per cent stake in its Oman gas project. But he said the company would be back to a more normal “churn” of $3bn to $4bn of assets after the latest wave is complete.
BP had provisioned $43.5bn for the Gulf of Mexico spill by the end of last year but it has been mired in a legal process that has made it difficult to estimate the final costs, which comprise a combination of government fines and costs, as well as compensation to a vast range of businesses along the US Gulf of Mexico.
In the first quarter, BP had to take an additional charge of more than $300m to meet some of these claims for disruption to business.
Those charges have been running at $300m to $400m a quarter, but Mr Gilvary said that the deadline for such claims will be early June this year.
In terms of its operations, BP benefited from improvements. Total oil and gas production was up about 13 per cent in the first quarter from a year earlier, at 2.3 million barrels of oil equivalent.
In the US, output was hardly changed at 653,000 boe, but the company booked an underlying loss of $545m, versus a $731m profit the year before, with the cancellation of two deepwater rigs costing BP $400m in the quarter. However, while Mr Gilvary said BP expects further pressure on costs in the months ahead, which should help the bottom line. Asked about delays to one of BP’s big Gulf of Mexico projects — Mad Dog Phase Two — Mr Gilvary said that it would make the project more profitable down the line.
“When you look at what is happening with rig rates, moving Mad Dog sideways [delaying it, that is] was best thing to do,” Mr Gilvary said. “We had 13 rigs stacked at the end of Q4, 21 rigs now and expect 41 to be scrapped by the end of the year. Rig rates are looking pretty soft.”
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