BP releases second quarter results

BP has reported its results for the second quarter of 2015. Underlying replacement cost profit for the quarter was US$1.3 billion, compared with US$2.6 billion for the previous quarter and US$3.6 billion for the same period a year earlier. The result reflected the impact of continued low oil and gas prices, a reduced contribution from Rosneft, and one off charges arising from circumstances in Libya, as well as continuing strong earnings from BP’s downstream businesses and lower cash costs throughout the group.

Following the announcement on 2 July that BP had reached agreements in principle to settle all outstanding federal and state claims and claims made by more than 400 local government entities arising from the 2010 Deepwater Horizon oil spill, an additional non-operating pre tax charge of US$9.8 billion was included in the result for the second quarter. As a result of this charge, together with other non-operating items and fair value accounting effects, BP reported a replacement cost loss for the quarter of US$6.3 billion.

“The external environment remains challenging, but BP moved quickly in response and we continue to do so,” said Bob Dudley, BP’s Group Chief Executive. “Our work to increase efficiency and reduce costs is embedding sustainable benefits throughout the group and we continue with capital discipline and divestments.”

In the second quarter the Brent crude price averaged US$62/bbl, compared with US$54/bbl in the first quarter and US$110/bbl in 2Q14. In the third quarter to date, the price has averaged [US$58]/bbl.

“In the past few weeks oil prices have fallen back in response to continued oversupply and market weakness and the recent agreements regarding Iran. I am confident that positioning BP for a period of weaker prices is the right course to take, and will serve the company well for the future,” Dudley continued.

BP’s operating cash flow in the second quarter was US$6.3 billion, compared with US$7.9 billion a year earlier. Organic capital expenditure in the quarter was US$4.5 billion, bringing the total for the first half of the year to US$8.9 billion. Full year organic capital expenditure is now expected to be below US$20 billion. BP has also now agreed US$7.4 billion of divestments towards the current US$10 billion divestment programme.

BP’s simplification and efficiency programmes to sustainably reduce non-safety critical cash costs are delivering results throughout the group; total cash costs in 2015 to date are estimated to be around US$1.7 billion lower than the same period last year. In the second quarter BP took a further US$270 million non-operating restructuring charge, bringing the total over the past three quarters to US$920 million. It now expects restructuring charges to total near to US$1.5 billion by the end of 2015.

“We can see clear progress in our capital programme and from our work to reset and reduce cash costs,” said Brian Gilvary, BP’s Chief Financial Officer. “Our focus remains on rebalancing the company’s sources and uses of cash in a lower price environment.”

At the end of the quarter, BP’s net debt was US$24.8 billion, US$293 million lower than at the end of the first quarter. This is equivalent to a gearing level of 18.8%, including the impact of the charge taken related to the settlement, within BP’s 10 - 20% target band.

Upstream

BP’s Upstream segment reported an underlying pre tax replacement cost profit of US$0.5 billion for the quarter, compared with US$0.6 billion in the first quarter and US$4.7 billion in 2Q14. Compared with a year earlier, the result was mainly affected by lower oil and gas prices. The result also included around US$600 million of exploration write offs and other costs related to BP’s activities in Libya, primarily due to circumstances in the country.

Overall reported oil and gas production, including Russia, was 3.1 million boe/d. Excluding Russia, reported production of 2.1 million boe/d was approximately the same as 2Q14 and underlying production was 1.7% lower, mainly due to increased turnaround activity, partly offset by the ramp up of production from projects that started up in 2014.

Downstream

BP reported underlying pre tax replacement cost profit for the Downstream segment of US$1.9 billion, compared with US$2.2 billion in the first quarter and US$0.7 billion in 2Q14. Compared to last year, the result was driven by good refining performance and capture of improved margins, a higher contribution from supply and trading and stronger earnings from both the lubricants and petrochemicals businesses.

Estimated underlying net income from Rosneft was US$510 million, compared with US$1 billion in 2Q14, primarily due to the movement in oil prices. At the Rosneft annual meeting in June Bob Dudley and Guillermo Quintero, a BP regional president, were elected to the Rosneft board. In July BP received its share of Rosneft’s annual dividend, US$271 million after tax.

The Greater Plutonio Phase III project offshore Angola has begun production. This is BP’s second major upstream project start up in 2015 and another two are expected before year end.

In June, BP signed agreements to purchase a 20% interest in Rosneft’s Taas subsidiary in Eastern Siberia and also agreed with Rosneft three areas of mutual interest in Eastern and Western Siberia for exploration. BP also announced plans to reorganise and simplify its German refining joint venture with Rosneft.Elsewhere in the Downstream segment, refining activity ceased at the Bulwer refinery in Australia in the second quarter and BP’s new technology advantaged purified terephthalic acid plant at Zhuhai in China is now fully commissioned and operational.

Other

In the quarter BP took a charge of US$10.8 billion in total related to the Gulf of Mexico oil spill, including US$9.8 billion associated with the government settlements as well as charges for further business economic loss claims and other ongoing costs. The total cumulative pre tax charge for the incident is now US$54.6 billion.

Following the agreements in principle announced on 2 July, BP has now advised the Court that it is satisfied with and has accepted releases received from the vast majority of local government entities. Accordingly, on 27 July, the District Court ordered BP to commence processing payments required under the releases and that such payments be made within 30 days of the Court's order. As part of the agreements in principle, BP agreed to pay up to US$1 billion to resolve claims made by local government entities.


Adapted from press release by Rosalie Starling

Published on 28/07/2015


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