Underlying replacement cost profit 20% down on year earlier, 15% higher than previous quarter.
Focus on rebalancing BP – resetting capital expenditure, managing cost, delivering divestments.
BP yesterday reported its results for first quarter of 2015. Underlying replacement cost profit for the quarter was $2.6 billion compared with $3.2 billion for the same period in 2014 and $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 $54-barrel compared with $108 in 1Q 2014. This was the lowest quarterly average Brent price since 1Q 2009.
BP remains on track to divest a further $10 billion of assets by the end of 2015. This total has now reached $7.1 billion, including the agreement to sell BP’s interest in the CATS business in the UK North Sea, announced last week.
Victoria Webb, dealer at London Capital Group, said: “BP’s sharp fall in Q1 profits was not as bad as markets feared thanks to robust downstream revenues, setting the benchmark for larger oil majors Shell and Exxon Mobil which report earnings this week.
“After UK government proclamations about BP being a ‘British industrial champion’ it was reassuring that the UK oil major was able to deliver premiership results to ensure it can still compete with the far bigger international majors.
“BP’s downstream performance more than compensated for the expected battering to upstream profits in the wake of the new norm of low oil prices. First quarter profit of $2.58 billion compared to $3.22 billion this time last year – but the drop still significantly beat expectations which went as low as $1.28 billion.”
Kim Fustier, oil analyst at Edison Investment Research, said: “BP’s first-quarter results came in 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. Rig cancellation costs are likely to show up in other majors’ results this quarter, as all majors rein in offshore drilling activity.
Fustier added: “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-picture.
“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 into the second quarter.”
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 the March budget by Chancellor George Osborne; the opposite effect was reported in 2011 when the supplementary charge was increased.
The quarter’s result also included a further $215 million non-operating restructuring charge; bringing total restructuring charges to $648 million compared with an estimated total of $1 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 $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 $43.8 billion. An additional charge of $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.