Slump in oil price batters BP profit
SLASHING investment and jobs, off-loading assets and focusing on refining, rather than finding, oil have helped BP minimise the devastating impact of the tumbling price of crude.
The British oil major yesterday reported better- than- expected first- quarter results for the three months to the end of March despite profits falling 39pc compared with the same period last year.
A massive slump in the price of Brent crude oil, which has almost halved compared to a year ago, has meant refineries have been able to process cheaper oil and generate improved profits which have offset the difficulties of exploration and production.
BP’s downstream business – the part of the firm not involved with finding or collecting oil – saw profit more than double to £1.43bn.
This is compared to the dire figures for upstream – the division that discovers and extracts oil and gas – which recorded an 86pc collapse in profit to £391.7m.
Overall profit for the three month period – which the industry calls replacement cost profit – fell 39.5pc compared to the same period last year to £1.37bn. On an underlying basis it reached £1.7bn, a 20pc drop, but above its fourth quarter figure.
BP, like other oil companies, is cutting costs and selling off parts of its business to protect profits and its dividend.
Brian Gilvary, chief financial officer, said: ‘We are in the midst of a major transition as we work to reset the company.’ He said 800 people left the group in the first quarter and confirmed 3,500 jobs were cut between 2012 and 2014.
He anticipated more to come, adding: ‘We are resetting and rebalancing BP to meet the challenges of a possible period of sustained lower (oil) prices.’
BP is embarking on a £6.5bn disposal programme this year and revealed its latest sell-off last week – a stake in a major North Sea pipeline system for £320m. It has also been cutting its spending programme by up to 30pc.
Analysts at Bernstein said BP benefited from the lower tax rates in the UK which equated to a tax rate of around 21pc in the quarter, compared to 33pc previously.
BP reiterated its commitment to its dividend payouts and announced a quarterly dividend of 10 cents a share (6.5p), unchanged from the previous quarter and up from 9.5 cents (6.2p) a share a year earlier.
French oil giant Total also yesterday reported a strong performance from its refining business offset the weakness in upstream. First-quarter net operating profit at Total’s downstream business more than tripled to £720m, compared to a 56pc fall in its upstream arm.
Despite the better than expected numbers for BP, the City remained concerned about its exposure in the US relating to the Deepwater Horizon oil spill in the Gulf of Mexico as well as its business in Russia.
Richard Hunter, head of equities at Hargreaves Lansdown, said: ‘The group’s exposure to Russia remains something of a drag on prospects, whilst the historic Gulf of Mexico costs cannot yet be consigned to the history books.’
Earnings from its Russian investment, via Rosneft, came in below analyst expectations – hit by currency moves and an increase in mineral tax and export duty.
BP (down 0.8p to 476.1p) said the total charge so far for the fatal Deepwater Horizon disaster was £28.6bn ($43.8bn). A ruling on phase three – the penalty phase – of the US trial is expected shortly.
Its shares have been in demand in the past month since rival Shell announced its £47bn takeover of BG Group. Some analysts had speculated interest in BP from US oil majors ExxonMobil or Chevron. However the Government said it would take steps to try to prevent any foreign takeover.