BP Reports Another Annual Loss Amid Low Oil Prices -- 4th Update
08 February 2017 - 12:49AM
Dow Jones News
By Sarah Kent
LONDON--BP PLC eked out a small profit in the final quarter of
2016, but the Deepwater Horizon disaster continued to weigh on the
company and contributed to its second consecutive annual loss.
The British oil giant also delivered some surprising news when
executives said Tuesday that the company now needs oil prices of
about $60 a barrel to balance its spending and cash flow, up from
the $50 to $55 a barrel they had previously indicated, after a
series of acquisitions late last year.
BP said its replacement-cost loss--a number similar to net loss
in the U.S.--was $999 million in 2016, compared with a loss of $5.2
billion a year earlier. The company reported a profit in the fourth
quarter of $72 million, compared with a loss of $2.2 billion in the
same period of 2015. Its underlying cash generation fell in the
quarter even as oil prices staged a rally to about $55 a barrel in
December, roughly their current level.
Overall, the news appeared to point to challenges for BP, and
investors drove the company's shares down 2.5% in London trading
Tuesday.
"In the current uncertain environment increasing the portfolio's
2017 break-even seems a step too far," said Rohan Murphy, energy
analyst at Allianz Global Investors, which holds shares in BP. The
results "are weak whichever way we cut them and 2017 needs to show
real progress in cash flow generation to reduce gearing."
BP's results marked another example of the world's biggest oil
companies still struggling to come to grips with a yearslong slump
in oil prices. The companies have spent much of the past three
years scrambling to bring their spending in line with cash
generation as oil prices plummeted and investors worried about the
sustainability of their sizable dividend programs.
For BP, the company remains encumbered by its 2010 blowout in
the Gulf of Mexico, which cost it another $7.1 billion in pretax
payments last year. The company said the total pretax bill has now
reached $62.6 billion for a disaster that killed 11 rig workers and
spilled millions of barrels of oil into the Gulf. Cash payouts
relating to the spill are expected to total around $4.5 billion to
$5.5 billion this year, but fall sharply to around $2 billion in
2018 and a little over $1 billion in 2019.
"I think this period '15, '16 and '17 may prove to be the trough
for us, " said BP Chief Executive Bob Dudley, highlighting growth
prospects in 2017 and beyond that are expected to bring online
800,000 barrels a day of new production by 2020.
BP caps off a mixed set of results after Chevron Corp. and Exxon
Mobil Corp. posted disappointing earnings and Royal Dutch Shell PLC
surprised with a cash surge, despite reporting weak profit. On
Tuesday, Norway's state-owned oil company, Statoil ASA, reported a
net loss of nearly $2.8 billion in the fourth quarter, largely
driven by its reduced long-term oil price assumptions.
BP executives still struck a confident tone. They said the
company had completed a number of acquisitions late last year,
giving it access to new production to capitalize on oil prices that
have been buoyed by the Organization of the Petroleum Exporting
Countries decision to cut output.
After years of cost-cutting, BP upgraded its spending plans for
2017 to invest in its new fields. Its capital expenditure is
expected to be between $16 billion and $17 billion this year,
similar to 2016, but up from previous guidance of $15 billion to
$17 billion for the year.
Those higher-spending plans are the core reason BP said it now
needs oil prices of $60 a barrel to balance its spending, after
reaching its previous $55 a barrel target ahead of its acquisitions
late last year.
The company's chief financial officer, Brian Gilvary, said he
sees oil prices staying comfortably above $50 a barrel this year
and cash flow reaching $21 billion-$22 billion, enough to cover
spending and dividend payouts.
Even if prices don't hit $60 a barrel--a level not seen since
June 2015--he said the company's all-important dividend wouldn't be
affected. The company took on $35.5 billion in debt in 2016, up
from $27.2 billion at the end of 2015, in part to keep paying the
dividend.
"It's probably the most secure it's looked in years," he said of
the dividend.
Despite success in reducing costs and cutting capital spending
more than previously announced, BP compared unfavorably with some
rivals on cash generation.
The company's underlying net cash generation tumbled 13% last
year compared with 2015, hammered by the weak market. Underlying
cash from operations in the fourth quarter fell nearly 24% compared
with the same period a year earlier.
At Shell, cash flow from operations jumped nearly 70% in the
fourth quarter. Statoil said Tuesday that it generated $900 million
in cash flow in the fourth quarter and decreased its break-even oil
price to $50 a barrel from $60 a barrel.
Write to Sarah Kent at sarah.kent@wsj.com
(END) Dow Jones Newswires
February 07, 2017 08:34 ET (13:34 GMT)
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