BP today reported its results for the fourth quarter and full-year 2014. Underlying replacement cost profit for the fourth quarter was US$2.2 billion compared with US$2.8 billion for the same period in 2013. Full year underlying replacement cost profit was US$12.1 billion compared with US$13.4 billion reported for 2013.
BP took a US$3.6 billion post-tax net charge for non-operating items in the quarter, mainly relating to impairments of Upstream assets reflecting the impact of the near-term lower oil price environment, revisions to reserves and other factors. As a result, including this charge and other effects, BP reported a replacement cost loss of US$969 million for the fourth quarter of 2014.
“We have now entered a new and challenging phase of low oil prices through the near and medium term,” said Bob Dudley, BP group chief executive. “Our focus must now be on resetting BP: managing and rebalancing our capital programme and cost base for the new reality of lower prices while always maintaining safe, reliable and efficient operations.”
BP today announced a quarterly dividend of 10 cents per ordinary share, expected to be paid in March. “Throughout the work to reset BP, the dividend remains the first priority within our financial framework,” Dudley confirmed.
BP is now taking action to respond to the likelihood of oil prices remaining low into the medium term and to rebalance its sources and uses of cash accordingly.
In 2015, BP plans to reduce exploration expenditure and postpone marginal projects in the Upstream, and not advance selected projects in the Downstream and other areas. As a result, organic capital expenditure in 2015 is expected to total around US$20 billion, significantly lower than previous guidance of US$24-26 billion. Total organic capital expenditure in 2014 was US$22.9 billion, lower than initial guidance of US$24-25 billion.
Since 2013 BP has agreed divestments with a cumulative value of US$4.7 billion and continues to expect this divestment total to reach US$10 billion by the end of 2015.
At the end of 2014 BP carried net debt of US$22.6 billion, equivalent to a gearing level of 16.7%. BP intends to maintain gearing within its existing target range of 10-20%.
BP is continuing its work to streamline activity and increase efficiency throughout the Group. Total cash costs for the Group fell by over US$1 billion in 2014 and BP is in action to deliver further efficiencies in 2015. In December 2014 BP said that it expects to incur restructuring charges totalling US$1 billion over the next five quarters. The 4Q 2014 results include almost US$450 million in restructuring charges, taken as a non-operating item.
BP’s Upstream segment reported underlying pre-tax replacement cost profit of US$2.2 billion for the quarter compared with US$3.9 billion for 4Q 2013. The result primarily reflected significantly lower oil prices than a year earlier: the dated Brent oil marker price averaged US$77 a barrel in 4Q 2014 compared with US$109 a barrel in 4Q 2013. The price has so far averaged US$48 a barrel in 2015. Benefits from higher underlying production and lower costs were partially offset by higher exploration write-offs.
Overall Group oil and gas production, including Russia, was 3.2 million boe/d. Excluding Russia, underlying Upstream production was 2.3% higher than a year earlier, but reported production of 2.2 million boe/d was 2.6% lower than 4Q 2013, primarily due to the expiry of the Abu Dhabi concession in January 2014.
Underlying pre-tax replacement cost profit for BP’s Downstream segment was US$1.2 billion for the quarter, compared with US$70 million in 4Q 2013, with improved refinery business delivery and marketing performance.
Estimated underlying net income from Rosneft was US$470 million compared with US$1.1 billion in 4Q 2013. Results were affected by lower oil prices, unfavourable duty lag effects and other items, partly offset by foreign exchange effects.
Total Group operating cashflow in the fourth quarter was US$7.2 billion. For the full year 2014, total operating cash flow was US$32.8 billion.
BP today reported a reserves replacement ratio, including Russia, for 2014 of 62%, excluding the impact of acquisitions and divestments.
BP has gained new exploration access in the North Sea, Gulf of Mexico and Egypt; and in December signed a production sharing agreement with SOCAR of Azerbaijan for exploration and potential development in the shallow water around the Absheron Peninsula in the Caspian Sea.
Two new upstream major projects – Kinnoull in the UK North Sea and Sunrise in Canada – began operations in December 2014. These completed the series of 15 upstream project start-ups expected over three years as part of the 10-point plan that was set out in 2011. In 2015, four further projects are expected to come into production: two in Angola and one each in Australia and Algeria.
The penalty phase of the MDL2179 trial arising from the Gulf of Mexico oil spill is underway in New Orleans. In September 2014 the court issued a ruling on the first phase of the trial, including a finding of gross negligence and wilful misconduct by BP Exploration & Production Inc. BP strongly disagrees with these findings and has appealed. Regarding the second phase, the court ruled in January that 3.19 million boe were spilled as a result of the incident and found no gross negligence in BP’s source control efforts.
The total cumulative pre-tax charge for Gulf of Mexico oil spill at end of 2014 was US$43.5 billion. An additional charge of US$477 million was taken in the fourth quarter reflecting increased provision for litigation costs and additional business economic loss claims and the ongoing costs of the Gulf Coast Restoration Organisation.
As before, 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$5.1 billion.
Adapted from press release by Joe Green