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“We have now entered a new and challenging phase of low oil prices through the near and medium term. Our focus must now be on resetting BP.” ~ CEO Bob Dudley.
A funny thing happened on the way to the office this morning. I read that BP (LSE:BP.) (NYSE:BP) had released its final quarterly report for 2014 at 2:00 a.m. My still sleep-fuzzy brain thought, “That’s quite odd.” After a second round of Starbucks, I realized that I was reading an American press release. BP had actually released its report at 7:00 a.m. UTC.
The BO share price opened on the LSE at 3:00 a.m., I mean 8:00 a.m., at 459.45, up 5% from yesterday’s close at 437.70. The share price rallied to a high of 463.00 (up 5.8%), but that lasted only about 90 minutes, before it receded to a range between 445.00 and 450.00 until 10:00 a.m. 3:00 p.m. Somebody, get me another Starbucks!
BP Results
Although BP shares are still holding at 449.00, one can almost feel the general, uneasy feeling of energy sectors investors as they try to balance their concerns about the volatility of oil prices against BP’s performance and its outlook for 2015. Here are BP’s results in a nutshell.
- Reported production was 2,143 million boepd, down 5% from 2013, whilst underlying production was 2% higher than the previous year. The important thing to note is that BP increased production in higher-margin facilities, a trend that we should expect to continue.
- Although the fourth quarter, unarguably the most difficult quarter for oil producers during 2014, resulted in $4.4 billion loss, leaving BP with a full-year profit of $3.8 billion, down from $23.5 billion in 2013.
- Replacement cost profit for the year came in at $8.1 billion, down from $23.7 billion in 2013, due in part to a Q4 loss of $969 million.
- Cash proceeds from planned divestitures totaled $3.5 billion for the year.
- The board declared an $0.10 dividend per share.
Net cash generated by operating activities deserves its own explanation for BP. The specter of the Deepwater Horizon oil spill still looms over the company. The report notes that “All amounts relating to the Gulf of Mexico oil spill have been treated as non-operating items.” Nonetheless, they must be considered in any accurate analysis for investors. Investors must realize that when a company divests billions of dollars of producing assets, the company also loses the revenue generating ability of those assets.
BP Resetting
Continuing the conversation of the Gulf oil spill, BP may actually be realizing a silver lining. Though it will take BP much longer to recover from the impact of that spill than it has taken the U.S. Gulf Coast, liquidating assets has not only generated the cash the company has needed to bear the costs of the spill, it has, ironically, helped to put BP into a better position to withstand the current volatility of oil prices that have dropped to $55.00 per barrel.
Launching from that platform (pardon the pun), BP has slashed its investment budget by 13% for 2015 in order to preserve the cash necessary to withstand the impact of sustained low-cost oil. In fact, analysts are in agreement today that, “Compared to peers, we believe BP has offered one of the most responsive outlooks to the lower near-term crude environment.”
That should be very good news for investors, because Bob Dudley told Bloomberg today that “It will be a long time before we see $100 (per barrel oil) again.”
