BP first-quarter earnings fall 80 per cent
BP today reported a sharp loss in the first quarter due mainly to lower oil prices and another charge related to its Gulf of Mexico oil spill six years ago.
The British oil company reported a loss attributable to shareholders, before interest and tax, of US$583 million, compared to a profit in the first three months last year of $2.6 billion.
The numbers are on a replacement cost basis, which adjusts for changes to the value of inventories due to fluctuating commodity prices.
BP’s shares rose as the results were better than some analysts had predicted. Shares in London were up 11.20 pence at 371.55 pence in mid-morning trade, a gain of about 3 per cent.
The loss was accounted for mainly by the upstream oil and gas business, which swung from a $372m profit in the first quarter last year to a $1.2bn loss as oil and gas prices plunged throughout the year – BP said its average realised price for oil and gas was 40 per cent lower in the first quarter of this year compared to last year.
The loss was exacerbated by another Gulf oil spill charge of $917m for the quarter.
BP reached a deal with the US government in March to settle claims arising from the Deepwater Horizon disaster, although the company says it is still uncertain about what the final bill will be.
It has so far made provisions of more than $56bn since 2010, including a now-depleted $20bn fund to settle claims by businesses in and around the Gulf area affected by the spill.
BP’s quarterly loss was mitigated by a $1.9bn profit in the downstream sector, just below the $2bn quarterly profit posted last year.
The company emphasised operational improvements and reported that “underlying” replacement cost profit would have been $532m if non-operational items – including the Gulf spill charge – were stripped out.
Alhough it expects lower upstream production and a heavier downstream maintenance schedule in the second quarter, the company expects improved performance through the year.
The chief executive Bob Dudley also has noted that oil prices are widely expected to gradually recover through the year. “Operational performance is strong and our work to reset costs has considerable momentum and is delivering results,” he said.
Some analysts have noted that BP remains vulnerable because it has had to shrink its assets considerably to meet a still unpredictable liability, a situation made worse by the collapse in oil prices.
“It looks like BP is betting on a rapid return to significantly higher oil prices,” said Steve Clayton of the London stockbroker Hargreaves Lansdown.
“If they duly appear, then BP will have protected its shareholders through the tough times. But if oil does not rebound, then BP will become progressively weaker.”
BP has maintained its dividend payment of 10 cents a share, although it has had to cut capital expenditure sharply – to below $19bn last year, compared with original forecasts of $25bn, and this year it is expected to be $17bn or lower.
Additionally, the company has had to sell off more than $50bn in assets since the spill and with the oil price crash it cut its 80,000 workforce by 10 per cent.
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Updated: April 26, 2016 04:00 AM