BP reports lower third-quarter profits

BP PLC reported third-quarter underlying replacement cost profit of $1.8 billion, up from $1.3 billion for the second quarter but down from $3 billion for third-quarter 2014 (OGJ Online, July 31, 2015).

Compared with a year earlier, the result primarily showed the impact of sharply lower oil and gas prices but also the benefits of a continuing strong downstream environment and performance and steadily lower cash costs throughout the group, the company says.

BP has set out a medium-term financial frame to balance cash flows by 2017 at around $60/bbl. The company says its organic capital expenditure will be $17-19 billion/year through 2017, and closer to $19 billion in 2015. Its expectations a year ago for 2015 capital spending were $24-26 billion and fewer than $20 billion in this year’s second quarter. Organic capital expenditure over the first 9 months was $13.2 billion.

The company, which began work to simplify its organization and increase efficiency throughout the group in 2013, reported controllable cash costs over the first 9 months were $3 billion lower year-over-year. BP expects this work to extend further, and by 2017, annual cash costs are expected to be more than $6 billion lower than those seen in 2014.

Currently at $7.8 billion, BP’s divestment program is nearing completion with total agreed divestments expected to approach $10 billion by yearend. As it continues to actively manage its portfolio, BP expects to complete an additional $3-5 billion in divestments in 2016 before returning to a rate of $2-3 billion/year thereafter. Divestment proceeds are expected to provide flexibility to help manage both continuing oil price volatility and BP’s commitments in the US, the company says.

Since 2010 BP has maintained gearing in a band of 10-20%, providing financial flexibility to manage uncertainties, primarily those associated with the Gulf of Mexico oil spill. As progress is being made towards completion of the agreements in principle to settle with the US government and Gulf Coast states, BP now intends to manage gearing with flexibility around a level of 20%.

The company in July reached agreements in principle to settle all outstanding federal and state claims arising from the Deepwater Horizon oil spill for $18.7 billion (OGJ Online, July 2, 2015). BP in July reached a proposed $20.8-billion settlement with the US as well as five states to resolve civil claims arising from the incident (OGJ Online, Oct. 5, 2015).

A charge of $426 million for the incident was taken in the quarter, bringing the total cumulative pretax charge to $55 billion. The additional charge comprises $460 million for business economic loss claims not provided for, ongoing costs, and adjustments to other provisions.

For its upstream segment, pretax underlying replacement cost profit was $800 million, up from $500 million in the second quarter but down from $3.9 billion in third-quarter 2014. The lower result compared with a year ago was primarily due to the effect of lower oil and gas prices, partly offset by lower costs and strong gas trading results, the company says.

BP’s downstream segment continued to perform strongly, reporting a pretax underlying replacement cost profit of $2.3 billion, up from $1.9 billion in the previous quarter and $1.5 billion in third-quarter 2014. Compared with a year earlier, the result benefitted from improved refining margins, strong refining operations and fuels marketing and, again, cost benefits from simplification and efficiency programs, the company says.

BP reported estimated underlying net income from Rosneft for the third quarter of $382 million, compared with $110 million in third-quarter 2014. As previously announced BP received an annual dividend from Rosneft of $271 million during the quarter.

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