BP earnings slide as low oil prices take their toll
Cost-cutting and a solid performance from the refining and marketing arm helped British energy producer BP Plc cushion the hit from low oil prices in the first quarter.
Though the company reported a 79 per cent slide in earnings, its share price spiked 4.5 per cent higher on Tuesday to 377 pence as the result was better than anticipated in markets.
BP reported that its underlying replacement cost profit the oil industry standard, which excludes non-operational items and the value of oil inventories dropped to US$532 million from US$2.58 billion in the first quarter of 2015. Though that's quite a precipitous decline, the result was about US$100 million better than analysts had forecast.
BP also said it would maintain its dividend at 10 cents a share a key factor as the stock is held by many pension funds.
"We think the key takeaway is the strong message on dividend sustainability today," brokerage firm Bernstein said in a statement. "BP is clearly delivering on its cost-reduction plans, which are offsetting commodity price weakness and delivering earnings and cash flow ahead of expectations."
Oil companies rushed to cut costs and curtail investment as oil prices tanked over the past year and a half, striking 12-year lows in January. Though prices have recovered somewhat since, they remain well below the US$100 a barrel posted as recently as September 2014. Brent crude, the benchmark for international oil, traded at US$44.82 a barrel on Tuesday, up from the US$34 a barrel average in the first quarter but down from US$54 in the first quarter of 2015.
In recent years, much of the profitability of major oil producers like BP has come from high oil prices. Because of the lower oil price environment, they have sought to keep a lid on costs. BP said on Tuesday it had reduced cash costs by US$4.6 billion over 2014 levels and cut organic capital expenditure to US$3.9 billion in the first quarter from US$4.4 billion a year earlier.
"Despite the challenging environment, we are driving towards our near-term goal of rebalancing BP's cash flows," Chief Executive Bob Dudley said. "Operational performance is strong and our work to reset costs has considerable momentum and is delivering results."
The company's earnings were driven by the so-called downstream business, primarily refining and marketing, which reported an underlying replacement cost profit of US$1.8 billion, compared with US$2.2 billion a year earlier. The upstream business, including exploration and production, posted a loss of US$747 million after a profit of US$604 million in the first quarter of 2015.
In a milestone for the company, BP said the bulk of the costs from the 2010 Deepwater Horizon accident are now known after a US District Court in April approved a settlement with the United States government and Gulf states.
BP set aside an additional US$917 million in the first quarter to cover costs related to the accident, bringing the total pre-tax charge to US$56.4 billion.