BP has reported its results for first quarter of 2015. Underlying replacement cost profit for the quarter was US$2.6 billion compared with US$3.2 billion for the same period in 2014 and US$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. Our results today reflect both this weaker environment and the actions we are taking in response,” said Bob Dudley, BP Group Chief Executive. “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.”
Oil and gas prices in the quarter were sharply lower than a year earlier. Brent crude averaged US$54/bbl compared with US$108 in 1Q14. This was the lowest quarterly average Brent price since 1Q09. The Henry Hub gas marker price averaged US$2.99/million Btu, 40% lower than a year earlier.
BP remains on track to divest a further US$10 billion of assets by the end of 2015. This total has now reached US$7.1 billion, including the agreement to sell BP’s interest in the CATS business in the UK North Sea, announced last week.
Organic capital expenditure in the first quarter was US$4.4 billion and Dudley confirmed BP’s reset expectation of US$20 billion total organic capital expenditure for 2015. “We will also look to take advantage of any opportunities presented by the lower price environment to further reduce capital expenditure or costs,” he added.
Operating cash flow for the quarter was US$1.9 billion compared with US$8.2 billion a year earlier. The quarter’s operating cash flow included a working capital build of US$2.5 billion. At the end of the quarter BP’s net debt was US$25.1 billion, equivalent to a gearing level of 18.4%.
BP’s Upstream segment reported underlying pre tax replacement cost profit of US$0.6 billion for the first quarter of 2015 compared with US$4.4 billion for 1Q14. The result included a US$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 US$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 boe/d. Excluding Russia, reported Upstream production of 2.3 million boe/d was 8.3% higher than a year earlier and underlying production 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 US$2.2 billion for the quarter, compared with US$1.0 billion in 1Q14. 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 US$183 million compared with US$270 million in 1Q14.
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 US$215 million non-operating restructuring charge; bringing total restructuring charges to US$648 million compared with an estimated total of US$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 US$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.
At the end of the quarter the total cumulative pre tax charge for the Gulf of Mexico oil spill was US$43.8 billion. An additional charge of US$332 million was taken in the quarter due mainly to additional business economic loss claims. This overall charge does not include any provision for business economic loss claims that are yet to be received, processed or paid (except where an eligibility notice has been issued and is not subject to appeal by BP within the claims facility).
At the end of the quarter the aggregate remaining cash balance in the Trust and qualified settlement funds was US$4.3 billion.
According to Kim Fustier, Analyst at Edison Investment Research, BP’s first quarter results were “slightly better than expected, however this was largely thanks to one off positive UK tax effects (as BP booked the benefit of the North Sea tax reduction in the quarter) rather than stronger underlying performance.”
“BP’s upstream profits were hit by lower oil and gas prices as well as break fees for two deepwater rig contracts in the US Gulf of Mexico, which sent BP’s US upstream business into a loss,” Fustier continued. “Rig cancellations costs are likely to show up in other majors’ results this quarter, as all majors rein in offshore drilling activity.”
“On a positive note, BP appears successful at cutting costs as it took a number of simplification and efficiency measures early and aggressively, but this is not yet enough to offset the weaker macro. Results were also boosted by a buoyant downstream, once again demonstrating the value of integration. Majors with high downstream exposure such as Shell, Total or Exxon should benefit from the strong global refining environment, which BP expects to last in the second quarter,” Fustier concluded.
Adapted from press releases by Rosalie Starling