BP annual profit skyrockets on higher prices and output
• Company resumes share buybacks despite having to pay billions in penalties and clean-up costs from 2010 spill
BP’s profits more than doubled in 2017 to $6.2bn, powered by higher prices and output of oil and gas, allowing the firm to resume share buybacks as it recovers from a downturn.
The London-listed company achieved one of the strongest output increases in its history in 2016, lifting production to levels not seen since the 2010 Deepwater Horizon spill. Output is set to continue growing into the end of the decade, thanks to more field start-ups in 2018.
BP would generate profits in 2018 at an oil price of $50 a barrel, chief financial officer Brian Gilvary said, as years of spending cuts kick in and as the company slowly shakes off a $65bn bill for penalties and clean-up costs of the 2010 spill.
BP was the first among its European peers to resume share buybacks in the fourth quarter of 2017 after years of dilutive austerity measures in the face of the industry slump.
With a 20% bounce in oil prices in the last quarter of 2017 to $61 a barrel, BP had a surplus of cash, which allowed it to buy $343m worth of shares in the fourth quarter, offsetting the scrip dilution.
BP was trading 0.7% lower in morning trade compared with a 2.3% decline for the sector.
CEO Bob Dudley said “2017 was one of the strongest years in BP’s recent history. We enter the second year of our five-year plan with real momentum, increasingly confident that we can continue to deliver growth.”
Full-year production rose 12% to 2.47-million barrels per day after BP launched seven new oil and gas fields in 2017, a record year.
It is set to start up six additional projects in 2018 including in Egypt, Azerbaijan and Britain’s North Sea, helping boost production by 900,000 barrels of oil equivalent per day by 2021, most of it gas. BP previously said it would launch five new projects in 2018.
BP added about 1-billion barrels of oil equivalent to its reserves in 2017, the largest since 2004, thanks to six discoveries including in Senegal and the North Sea. Its reserve replacement ratio was estimated at 143% for the year.
BP’s refining and trading business increased profits to $7bn in 2017 as earnings for the marketing division rose by more than 10%.
Cash flow in the fourth quarter rose slightly to $6.2bn but fell short of market expectations, raising concerns that cost cuts have run their course, echoing concerns about rivals Royal Dutch Shell, Exxon Mobil and Chevron, which reported last week.
The weakness was due mostly to lower-than-expected income from refining operations, BMO Capital Markets analyst Brendan Warn said.
Payments for the Deepwater Horizon spill in the Gulf of Mexico continued to weigh on BP, which took a $1.7bn charge in the quarter due to higher-thanexpected claims settlements, bringing the total legal and clean-up costs to $65bn.
BP also took a one-off charge of $900m to adjust to new US tax rules, although it expects a long-term boost from lower corporate tax rates.
Despite the strong start to oil prices, which reached a threeyear high in January, Gilvary said he expected prices to come down to $50-$55 a barrel by the end of 2018.
BP reported a $2.1bn fourthquarter underlying replacement cost profit, its definition of net income, topping forecasts for $1.9bn, a company-provided survey of analysts showed. That marked a jump from $400m a year earlier and topped a thirdquarter profit of $1.9bn.
On an annual basis, BP’s profits soared to $6.2bn, from $2.6bn in 2016.
Gearing, the ratio between debt and BP’s market value, rose to 27.4% at the end of 2017, from 26.8% at the end of September.
BP’s full-year capital spending reached $16.5bn, within the annual range of $15bn-$17bn it plans to maintain until 2021.