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BP Earnings Fall on Lower Production and Higher Costs
By STANLEY REED
LONDON — BP on Tuesday reported a decline in fourth-quarter profit from a year earlier, a reflection of the asset sales the British oil giant has made in the wake of the Gulf of Mexico disaster that have left it a smaller company.
For the three months through December, BP posted operating earnings of $4 billion, adjusted for one-time items and inventory changes, down from $5 billion a year earlier but ahead of analysts’ average forecast of $3.3 billion.
Operating profit for the full year was $17.6 billion, down 19 percent from 2011.
The company began an extensive restructuring after the April 2010 explosion on the Deepwater Horizon rig in the Gulf of Mexico that killed 11 people and unleashed a huge oil spill. Among the asset sales announced, BP agreed Oct. 22 to sell its 50 percent stake in a Russian joint venture, TNK-BP, to the state-controlled Rosneft for about $27 billion in cash and stock.
As a result, BP’s fourth-quarter results included only 21 days of earnings from TNK-BP, which had provided about 25 percent of BP’s output, or about one million barrels per day. BP said its share of TNK-BP’s earnings in the quarter was $220 million, compared with $1 billion in the fourth quarter of 2011.
Robert W. Dudley, who succeeded Tony Hayward as chief executive in 2010, has been selling assets to raise cash for penalties and damages resulting from the spill. But the process has given him the opportunity to try to create a leaner, more profitable company. Including the TNK-BP deal, BP has agreed to roughly $65 billion in asset sales since 2010.
Mr. Dudley said at a news conference Tuesday that the assets sales “have significantly increased the quality of the portfolio while reducing its age and complexity.” He said BP was now able to bring a tighter focus to a smaller set of oil and gas resources, including reserves in the Gulf of Mexico, in the deep waters off the coast of Angola, and in the more remote waters north of Scotland.
But BP acknowledged that the asset sales had a downside. For example, output, which is often a proxy for an oil company’s profitability, is likely to decline again this year after falling 6 percent in 2012, said BP’s chief financial officer, Brian Gilvary.
“The impacts of the divestments will be increasingly evident as we move through 2013,” Mr. Gilvary said, adding that asset sales last year would reduce output by about 150,000 barrels per day this year.
Mr. Gilvary said most of the decline “relates to higher-margin areas in the Gulf of Mexico and the North Sea.” In other words, BP may be streamlining but it has also lost some profitable assets, like the group of oil fields in the Gulf of Mexico that it sold to Plains Exploration & Production for $5.6 billion in September.
“Per-barrel profitability is likely to remain below historic levels this year,” analysts at Bernstein Research wrote in a note after the results.
Mr. Gilvary said that excluding TNK-BP, the oil and gas fields the company had sold would have accounted for about 500,000 barrels per day in production and about $5 billion in pretax earnings.
But BP’s production has actually fallen by about 700,000 barrels per day from 2010. The additional decline is largely because of a steep drop-off in production in the Gulf of Mexico, the result of a partial moratorium on oil company operations in the gulf that was imposed after the 2010 disaster and has since been lifted.
BP still produces about 2.3 million barrels per day, but that is much less than its traditional rivals, Exxon Mobil, at about 4.2 million barrels per day, and Royal Dutch Shell, at about 3.4 million barrels.
Mr. Dudley said that he thought production of about 2.2 million barrels per day would be “the low point for us.” He said the company brought five new oil and gas projects online in 2012, and was on track to start up a total of 15 from 2011 to the end of 2014.
Stuart Joyner, an analyst at Investec in London, said it would “take a while” for Mr. Dudley’s strategy to work. BP is “selling assets and investing in new assets,” and the new acquisitions will not pay off immediately, Mr. Joyner said.
The effects of the gulf spill continue to haunt the company in other ways. In November, the U.S. Environmental Protection Agency prohibited BP from receiving new U.S. government contracts. As a result, Mr. Dudley said, BP did not participate in the most recent auction of leases in the Gulf of Mexico and might not bid in the next. But he said that BP, the largest leaseholder in the region, had such a large position that it was questionable whether it would want to add more terrain there.
BP also took $4.1 billion in additional write-offs for the gulf spill in the quarter, bringing total provisions to $42.2 billion. The new write-offs are largely the result of a settlement of criminal charges brought by the U.S. Department of Justice in connection with the spill.
Uncertainty over the ultimate cost of the spill lingers. BP still faces a civil trial in New Orleans in late February that could result in penalties of more than $20 billion, according to analysts.
The company’s shares remain down about 30 percent from their price before the spill, though they have risen about 10 percent this year. They rose 1.4 percent in London on Tuesday.
Last month, militants attacked an Algerian gas plant, In Amenas, that is part-owned by BP. Four BP employees were killed in the attack.
Mr. Dudley said BP “remains committed to operating in Algeria” but the company was “in mourning” for the people “murdered on what should have been an ordinary day of work”
In Amenas produced the equivalent of 17,000 barrels per day, making it a relatively small part of BP’s global portfolio.
http://www.nytimes.com/2013/02/06/bu...her-costs.html
By STANLEY REED
LONDON — BP on Tuesday reported a decline in fourth-quarter profit from a year earlier, a reflection of the asset sales the British oil giant has made in the wake of the Gulf of Mexico disaster that have left it a smaller company.
For the three months through December, BP posted operating earnings of $4 billion, adjusted for one-time items and inventory changes, down from $5 billion a year earlier but ahead of analysts’ average forecast of $3.3 billion.
Operating profit for the full year was $17.6 billion, down 19 percent from 2011.
The company began an extensive restructuring after the April 2010 explosion on the Deepwater Horizon rig in the Gulf of Mexico that killed 11 people and unleashed a huge oil spill. Among the asset sales announced, BP agreed Oct. 22 to sell its 50 percent stake in a Russian joint venture, TNK-BP, to the state-controlled Rosneft for about $27 billion in cash and stock.
As a result, BP’s fourth-quarter results included only 21 days of earnings from TNK-BP, which had provided about 25 percent of BP’s output, or about one million barrels per day. BP said its share of TNK-BP’s earnings in the quarter was $220 million, compared with $1 billion in the fourth quarter of 2011.
Robert W. Dudley, who succeeded Tony Hayward as chief executive in 2010, has been selling assets to raise cash for penalties and damages resulting from the spill. But the process has given him the opportunity to try to create a leaner, more profitable company. Including the TNK-BP deal, BP has agreed to roughly $65 billion in asset sales since 2010.
Mr. Dudley said at a news conference Tuesday that the assets sales “have significantly increased the quality of the portfolio while reducing its age and complexity.” He said BP was now able to bring a tighter focus to a smaller set of oil and gas resources, including reserves in the Gulf of Mexico, in the deep waters off the coast of Angola, and in the more remote waters north of Scotland.
But BP acknowledged that the asset sales had a downside. For example, output, which is often a proxy for an oil company’s profitability, is likely to decline again this year after falling 6 percent in 2012, said BP’s chief financial officer, Brian Gilvary.
“The impacts of the divestments will be increasingly evident as we move through 2013,” Mr. Gilvary said, adding that asset sales last year would reduce output by about 150,000 barrels per day this year.
Mr. Gilvary said most of the decline “relates to higher-margin areas in the Gulf of Mexico and the North Sea.” In other words, BP may be streamlining but it has also lost some profitable assets, like the group of oil fields in the Gulf of Mexico that it sold to Plains Exploration & Production for $5.6 billion in September.
“Per-barrel profitability is likely to remain below historic levels this year,” analysts at Bernstein Research wrote in a note after the results.
Mr. Gilvary said that excluding TNK-BP, the oil and gas fields the company had sold would have accounted for about 500,000 barrels per day in production and about $5 billion in pretax earnings.
But BP’s production has actually fallen by about 700,000 barrels per day from 2010. The additional decline is largely because of a steep drop-off in production in the Gulf of Mexico, the result of a partial moratorium on oil company operations in the gulf that was imposed after the 2010 disaster and has since been lifted.
BP still produces about 2.3 million barrels per day, but that is much less than its traditional rivals, Exxon Mobil, at about 4.2 million barrels per day, and Royal Dutch Shell, at about 3.4 million barrels.
Mr. Dudley said that he thought production of about 2.2 million barrels per day would be “the low point for us.” He said the company brought five new oil and gas projects online in 2012, and was on track to start up a total of 15 from 2011 to the end of 2014.
Stuart Joyner, an analyst at Investec in London, said it would “take a while” for Mr. Dudley’s strategy to work. BP is “selling assets and investing in new assets,” and the new acquisitions will not pay off immediately, Mr. Joyner said.
The effects of the gulf spill continue to haunt the company in other ways. In November, the U.S. Environmental Protection Agency prohibited BP from receiving new U.S. government contracts. As a result, Mr. Dudley said, BP did not participate in the most recent auction of leases in the Gulf of Mexico and might not bid in the next. But he said that BP, the largest leaseholder in the region, had such a large position that it was questionable whether it would want to add more terrain there.
BP also took $4.1 billion in additional write-offs for the gulf spill in the quarter, bringing total provisions to $42.2 billion. The new write-offs are largely the result of a settlement of criminal charges brought by the U.S. Department of Justice in connection with the spill.
Uncertainty over the ultimate cost of the spill lingers. BP still faces a civil trial in New Orleans in late February that could result in penalties of more than $20 billion, according to analysts.
The company’s shares remain down about 30 percent from their price before the spill, though they have risen about 10 percent this year. They rose 1.4 percent in London on Tuesday.
Last month, militants attacked an Algerian gas plant, In Amenas, that is part-owned by BP. Four BP employees were killed in the attack.
Mr. Dudley said BP “remains committed to operating in Algeria” but the company was “in mourning” for the people “murdered on what should have been an ordinary day of work”
In Amenas produced the equivalent of 17,000 barrels per day, making it a relatively small part of BP’s global portfolio.
http://www.nytimes.com/2013/02/06/bu...her-costs.html
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