28th Jul 2015 11:38
LONDON (Alliance News) - BP PLC Tuesday said it swung to a loss in the first half of 2015 after revenue fell due to lower oil prices and it booked charges related to its long-awaited settlement over the 2010 Deepwater Horizon oil spill in the Gulf of Mexico.
The FTSE 100 oil and gas giant reported a replacement cost loss of USD6.26 billion in the second quarter of 2015, swinging from a USD3.18 billion profit a year earlier.
That brought the replacement cost loss for the first half to USD4.16 billion, also swinging from a USD6.65 billion profit a year earlier.
The first half loss was caused by a fall in revenue, the oil spill settlement, and non-operating charges. BP was was hit by USD7.89 billion in non-operating net charges in the first half.
Included in those non-operating net charges was USD487 million of restructuring charges in the first half, but BP warned that restructuring charges for the full year will now be around USD1.50 billion, considerably higher than the USD1.00 billion announced in December.
The recently announced agreements in principle to settle US federal, state and the vast majority of local government claims arising from the Deepwater Horizon accident resulted in BP booking a pretax charge of USD9.80 billion in the second quarter, slightly below the USD10.0 billion expected by analysts. The total cumulative pre-tax charge for the 2010 explosion and oil spill is now USD54.6 billion.
Revenue in the first half totalled USD114.84 billion, falling from USD185.67 billion a year earlier whilst BP's pretax loss for the half was USD6.33 billion after swinging from a USD10.4 billion profit.
However, the replacement cost profit before non-operating charges in the second quarter was USD1.31 billion compared to a USD3.63 billion profit a year earlier and for the first half it came in at USD3.89 billion, nearly half the USD6.86 billion profit a year earlier.
BP's upstream segment, which is the segment that has been hardest hit by the fall in oil prices across the industry, reported a replacement cost profit before non-operating charges of USD500 million in the second quarter, falling from USD4.70 billion a year earlier.
Alongside lower oil and gas prices, BP said the large fall in profit was caused by USD600 million worth of exploration write-offs related to Libya due to the "circumstances in the country", meaning its civil war.
Operationally, BP produced a total of 3.1 million barrels of oil equivalent per day in the second quarter of 2015, which included a 1.0 million barrel per day contribution from its Russian operations with Rosneft. Production excluding Russia was flat year-on-year, but including Russian production this was down 1.7%.
On a more positive note for the upstream segment, BP began producing at the Greater Plutonio Phase III project offshore Angola, the company's second major upstream project that has started production in 2015. Another two upstream projects will come online before the end of 2015.
Rosneft, the Russian producer in which BP holds a 19.75% interest, contributed significantly lower earnings. In the second quarter, net income before exceptional items came in at USD510 million, half of the USD1.0 billion a year earlier.
In June, BP and Rosneft rekindled their relationship by signing joint production, exploration and refining deals. Political tensions between Russia and the West and the sanctions implemented against the country over its actions in Ukraine have not put BP off expanding in the country, and the company said it is committed to Russia and will continue to seek further opportunities.
Its downstream segment reported a replacement cost profit before non-operating charges of USD1.90 billion for the second quarter, up from only USD700 million a year earlier but around USD300 million less than it made in the first quarter of 2015.
"Compared to last year, the result was driven by good refining performance and capture of improved margins, a higher contribution from supply and trading and stronger earnings from both the lubricants and petrochemicals businesses," BP said in a statement.
Including the impact of the Gulf of Mexico oil spill, net cash provided by operating activities for the second quarter and half year was USD6.30 billion and USD8.10 billion, respectively, compared with USD7.9 billion and USD16.1 billion for the same periods in 2014.
BP said it will maintain its quarterly dividend of 10.0 cents per share for the second quarter of 2015.
Net debt at the end of June stood at USD24.8 billion, up from USD24.4 billion a year earlier, pushing up BP's net debt ratio to 18.8% from 15.5% but still within its target range of 10% to 20%.
Total capital expenditure in the first half totalled USD9.1 billion, of which USD8.90 billion was organic capital expenditure, down from USD11.7 billion a year earlier, which had included USD11.00 billion of organic expenditure. For the full year 2015, BP expects organic capital expenditure to be below USD20.00 billion.
Overall, lower oil prices are not only damaging oil-company profits but also causing companies to cut back on investments. In July 2014, Brent oil prices stood at around USD115 per barrel, which compares to only USD54 per barrel in the first quarter of 2015 and USD62 per barrel in the second quarter for BP. On Tuesday morning, Brent had fallen back to around USD53 per barrel.
"In the past few weeks oil prices have fallen back in response to continued oversupply and market weakness and the recent agreements regarding Iran. I am confident that positioning BP for a period of weaker prices is the right course to take, and will serve the company well for the future," said Chief Executive Bob Dudley, referring to the nuclear agreement between and the West.
Cost cutting has become the norm for oil and gas companies as a response to falling prices, as they attempt to last in a world of prices as low as USD50 per barrel, and the large majors are no exception.
BP said its simplification and efficiency programmes to sustainably reduce non-safety-critical cash costs are "delivering results", and the company said total cash costs for the full year should be around USD1.70 billion less than the previous year.
"We can see clear progress in our capital programme and from our work to reset and reduce cash costs. Our focus remains on rebalancing the company's sources and uses of cash in a lower price environment," said BPChief Financial Officer Brian Gilvary.
In 2013, BP said it planned to generate USD10.00 billion from divesting from some of its assets before the end of 2015. So far, BP has reached USD7.40 billion, of which USD2.3 billion was achieved in the first half of 2015.
"The external environment remains challenging, but BP moved quickly in response, and we continue to do so. Our work to increase efficiency and reduce costs is embedding sustainable benefits throughout the group, and we continue with capital discipline and divestments," said Dudley.
BP shares were up 1.7% to 393.68 pence per share midday Tuesday.
By Joshua Warner; [email protected]; @JoshAlliance
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