BP has reported a 91% drop in Q4 2015 earnings, revealing the impact of the lowest oil prices in more than a decade on the business, and says oil prices look set to "continue to be challenging in the near term."
The firm's full year underlying profit was a loss of $5.18 billion - reported as being its lowest in 20 years. Q4 profits, adjusted for one-off items and inventory changes, were US$196 million, compared to $2.23 billion in the same period last year, as the firm soaked up $44/bbl average crude prices in the quarter, compared to $77/bbl a year ago.
BP is still grappling with costs relating to the 2010 Gulf of Mexico disaster. Earlier this year it announced it was cutting around 4000 jobs in its upstream business in 2016, with a further 3000 downstream jobs facing the axe next year.
Today, the company said "controllable cash costs" were $3.4 billion lower in 2015 compared to 2014 and that these costs were on track to be close to $7 billion lower in 2017. The firm, which has just completed a $10 billion divestment program, announced in October 2013, said it now also plans a further $3-5 billion of divestments during 2016.
CEO Bob Dudley, who in 2014 urged the industry not to overreact to the falling oil prices, said: “We are continuing to move rapidly to adapt and rebalance BP for the changing environment. We’re making good progress in managing and lowering our costs and capital spending, while maintaining safe and reliable operations and continuing disciplined investment into the future of our portfolio. Our plans set out a clear course for BP for the medium term and will allow us to deliver growth in the longer term."
BP Group's full year underlying profits were $5.9 billion, down 51% from $12.13 billion in 2014. BP's upstream business suffered the most, posting a full year $937 million loss, compared to $8,9 billion profits last year. BP also took a $2.6 billion hit in non-operating, post-tax charges in Q4, due to impairments, or devaluation, on its upstream assets, as well as restructuring costs.
Full year production was at 3.27 MMb/d, including BP's share of Rosneft's production, compared to 3.15 MMb/d in 2014. BP says it expects 2016 production to be broadly flat with that of 2015.
Organic capital expenditure for 2015 was $18.7 billion. BP expects annual organic capital expenditure to remain between $17 and $19 billion in 2016 and 2017, but at the lower end of that range in 2016.
Brian Gilvary, BP's CFO said: “Should current conditions persist for longer than anticipated, we expect that all the actions we are taking will capture more deflation and so drive the point at which we balance our organic sources and uses of cash lower than the $60 per barrel that we indicated at last quarter’s results.”
BP's results come just a day after the firm announced a senior management shake-up, which saw upstream chief executive Lamar McKay take on a new role of deputy group chief executive, and Bernard Looney, BP's chief operating officer, take his place. Analysts have suggested this is the company preparing for "life after Bob Dudley."
Despite the gloom, BP has continued to pursue upstream opportunities, including in Egypt, where it signed an agreement with the government to accelerate the Atoll gas discovery development project, in the North Damietta offshore concession in the East Nile Delta, and the Gulf of Mexico. Three major upstream projects, on in Australia and two in Angola, started production in 2015. BP also took final investment decisions on four new major upstream projects in 2015, including the large West Nile Delta project in Egypt.
The firm's new Glen Lyon floating production, storage and offloading vessel (pictured, image from BP), is currently in tow to Norway for pre-installation works before traveling to the West of Shetlands for installation and start of production as part of the Quad 204 project, redeveloping the Schiehallion and Loyal fields.
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