3rd Feb 2015 07:52
LONDON (Alliance News) - BP PLC Tuesday reported a drop in earnings during the fourth quarter of 2014, and reacted to the recent steep fall in oil prices by announcing further cuts to its capital expenditure budget for 2015 and significant impairment charges.
Underlying cost replacement profit for the fourth quarter ended December 31 was USD2.2 billion, significantly lower than the USD2.8 billion reported a year earlier, but higher than analysts' expectations of around USD1.57 billion.
Full year underlying replacement cost profit totalled USD12.1 billion, down from the USD13.4 billion reported in 2013.
During 2014, BP spent USD22.9 billion in capital expenditure, below its guidance of USD24 to USD25 billion.
However, BP is now taking action to respond to the likelihood of oil prices remaining low into the medium term and to rebalance its sources and uses of cash accordingly. Recently, Chief Executive Bob Dudley warned oil prices could remain low for up to three years.
BP has slashed its capital expenditure for 2015 to USD20 billion compared with its previous budget of USD24 billion to USD26 billion. The reduction reflects BP's decision to postpone "marginal projects" in its upstream division and to reduce exploration expenditure.
BP posted a USD3.6 billion post-tax net charge for non operating items in the fourth quarter, mainly relating to impairments of its upstream assets and to reflect the current low oil price environment, revisions to reserves and other factors. As a result, BP reported a replacement cost loss of USD969 million in the fourth quarter.
BP also booked USD450 million in restructuring charges in the fourth quarter, taken as a non-operating item, as reported in December.
"We have now entered a new and challenging phase of low oil prices through the near and medium term," said CEO Dudley. "Our focus must now be on resetting BP: managing and rebalancing our capital programme and cost base for the new reality of lower prices while always maintaining safe, reliable and efficient operations."
As expected, BP retained its dividend of 10 cents per share but analysts had warned the company would revise its policy in the first and third quarter of 2015. However, BP said "throughout the work to reset BP, the dividend remains the first priority within our financial framework."
The total cumulative pretax charge for the Gulf of Mexico oil spill at the end of 2014 was USD43.5 billion. An additional charge of USD477 million was taken in the fourth quarter reflecting increased provision for litigation costs and additional business economic loss claims, it said.
However, the charges laid out for the Gulf of Mexico do not include any provision for business economic loss claims, said BP.
At the end of 2014, BP carried net debt of USD22.6 billion, equivalent to a gearing level of 16.7%, which is in the company's guidance of between 10% to 20%.
The company reported a cash balance of USD5.1 billion at the end of 2014.
By Joshua Warner; [email protected]; @JoshAlliance
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