x Abu Dhabi, UAEThursday 27 July 2017

BP production drops as Abu Dhabi concession expires

The company produced 2.1 million barrels of oil equivalent a day during the second quarter - a 6 per cent drop.

Oil workers inspect oil pumps at a Samaraneftgaz oil production unit in Russia. BP said that to date, western sanctions on Moscow had not had a significant effect on its business in Russia. Source: OAO Rosneft via Bloomberg
Oil workers inspect oil pumps at a Samaraneftgaz oil production unit in Russia. BP said that to date, western sanctions on Moscow had not had a significant effect on its business in Russia. Source: OAO Rosneft via Bloomberg

The oil and gas producer BP has reported a 6 per cent drop in production in the second quarter following the end of its Abu Dhabi concession in January.

The company produced 2.1 million barrels of oil equivalent a day in the period and said that production in the third quarter was “expected to be lower due primarily to turnaround and seasonal maintenance activities”.

BP said that underlying replacement cost profit, which takes into account non-operating items and accounting changes, rose 34 per cent in the period to US$3.6 billion, from $2.7bn in the year-earlier quarter. That beat the $3.4bn average estimate of 13 analysts in a Bloomberg News survey.

The company also announced a quarterly dividend of 9.75 cents per ordinary share, the same as the previous quarter, but 8.3 per cent higher than a year earlier.

“We are continuing to ramp up the major new projects that drive delivery of cash flow and are also now seeing benefits from our focus on operating with greater reliability and efficiency,” said Bob Dudley, the BP chief executive. “This operational momentum keeps us well on track to meet our 2014 targets and underpins our longer-term commitment to grow distributions to our shareholders.”

BP said that to date, western sanctions on Moscow had not had a significant effect on its business in Russia, where it makes about a third of its crude oil output, but that could change.

“If further international sanctions are imposed on Rosneft or new sanctions are imposed on Russia or other Russian individuals or entities, this could have a material adverse impact on our relationship with and investment in Rosneft, our business and strategic objectives in Russia and our financial position and results of operations,” it said.

BP, by far the largest foreign investor in Russia through its 19.7 per cent stake in the Russian state oil company Rosneft, has repeatedly said it will stand by its investments in Russia since Moscow’s intervention in Ukraine, where pro-Russian rebels are fighting government forces in the east of the country.

But things could get harder as the European Union weighs a new set of punitive measures against Moscow in response to the downing of a Malaysian airliner in eastern Ukraine. Additional sanctions could include financial restrictions and a ban on exports to Russia of equipment for use by oil and gas producers.

BP also increased its divestments as part of a sector-wide drive to reduce spending and contain rising costs with the recent sale of its Hugoton gas assets in Texas for $390m. It has sold $3.4bn worth of assets since last year out of a planned two-year total of $10bn divestments.

The London headquartered company said that five new projects started production this year, including three in deepwater off the Gulf of Mexico and one in Angola, which produced its first oil last month. Two more projects are expected to start this year.

Rising production from higher-margin fields and increased processing from the newly modernised Whiting refinery in Indiana contributed to operating cash flow of $7.9bn, with the total for the first half at $16.1bn.

“These were a strong set of results,” said Anish Kapadia, an analyst at Tudor Pickering Holt in London. “It was particularly encouraging to see increased oil production from the US as well as a good contribution from Rosneft, putting them on track to meet the $30bn to $31bn target for cash flow for the year.”

* with agencies

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