BP Plc (BP/), Europe’s second-largest oil
company, said fourth-quarter profit fell from a year earlier as
output declined and refining margins weakened.
Profit adjusted for one-time items and inventory changes
dropped to $2.8 billion from $3.9 billion a year earlier, the
London-based company said in a statement. That matched the
average estimate of 12 analysts surveyed by Bloomberg.
BP follows Royal Dutch Shell Plc (RDSA) and Exxon Mobil Corp., the
two biggest oil companies by market value, in reporting lower
earnings as the cost of drilling rises, refining profits slump
and prices stagnate.
Chief Executive Officer Bob Dudley has sold
less profitable fields in the wake of the 2010 Gulf of Mexico
spill and focused on profit margins rather than volume targets.
"Everyone in the industry is facing similar issues,” said
Peter Hutton, an analyst at RBC Capital Markets in London, in a
Bloomberg Television interview. "Investors are looking for
capital efficiency, and BP is in a reasonably good position. But
one thing we’re still looking for is a return of operating
momentum.”
Shell and BG Group Plc (BG/) both issued profit warnings for the
fourth quarter. BG today reported the first loss since 2000 on
output disruptions from Egypt and higher exploration costs.
Shell said last week it will accelerate asset sales to offset
investment after capital spending reached a record in 2013.
Production Outlook
BP’s production in the quarter fell 1.9 percent to 2.25
million barrels of oil equivalent a day. The figure excludes
Russia, where BP completed the sale of its 50 percent in TNK-BP
last year and acquired 20 percent of OAO Rosneft. Adjusting for
disposals, underlying output rose 3.7 percent.
BP expects underlying output to rise this year, though
reported production will drop because of divestments and the
loss of about 140,000 barrels a day from the expiration of its
concession in Abu Dhabi.
Dudley has promised to focus on BP’s most profitable fields
to raise the company’s cash flow to a level 50 percent higher
this year than in 2011. The company said it’s on track to hit a
target of at least $30 billion this year in net cash from
operations, compared with $21.1 billion in 2013.
New project start-ups give BP "a good clear line of sight
to get to the $30 billion in 2014,” Dudley said in a Bloomberg
Television interview today. "You have to select your projects
very carefully and execute them really well, and pace them out
so there’s cash in excess so there’s distributions to
shareholders. There’s still a lot of growth out there for us.”
Refining Slump
Adjusted profit in the refining and marketing arm of the
company plunged to $70 million from $1.4 billion a year earlier
in the fourth quarter. Narrower margins, a "weak result” from
the trading business, start-up charges at the Whiting refinery
after modernization and the disposal of the Texas City and
Carson plants all hurt the bottom line, BP said.
BP shares fell as much as 2 percent in London and traded
down 1.6 percent at 465.85 pence at 10:10 a.m. local time.
Brent crude prices averaged $109.35 a barrel in the fourth
quarter, 0.7 percent lower than a year earlier, while BP’s
refining marker margin, a generic measure of the profitability
of processing oil, dropped to $11 a barrel from $18.17 in the
last three months of 2012.
Asset Sales
BP has gained 4.8 percent through yesterday since Oct. 29,
when it announced third-quarter results that beat analyst
estimates and unexpectedly raised the dividend. It completed a
$38 billion asset-sale program ahead of schedule to shore up the
balance sheet after the 2010 Gulf of Mexico oil spill.
The company will sell a further $10 billion of assets by
the end of 2015 and give most of the proceeds to shareholders,
favoring buybacks, it said in October. BP has bought back about
$6.8 billion of shares in the $8 billion program funded by a
deal in which it sold its half of Russian venture TNK-BP and
took a 20 percent stake in OAO Rosneft (ROSN), the country’s biggest
oil producer.
BP still faces billions of dollars in fines from the Gulf
spill under the U.S. Clean Water Act. Two parts of a three-phase
trial inNew Orleans over blame for the accident and the size of
the penalty have been completed, though no ruling has been
issued. BP raised its provision for costs for the disaster by
$200 million to $42.7 billion, reflecting higher legal costs and
the expense of environmental restoration.
On Jan. 11, BP faced a setback when its $9.2 billion
partial settlement with victims of the spill was upheld by an
appeals court. BP said that payouts are being made for
"fictitious” claims that have nothing to do with the spill.
It’s also contesting a ban on gaining new government contracts.
(www.bloomberg.com)