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LONDON (Alliance News) - BP PLC Tuesday said its pretax profit for the first quarter of 2015 was substantially lower than a year ago after its upstream division was hit by the lowest quarterly oil price since the start of 2009, and by reduced activity, partially offset by the downstream division which experienced a lift in earnings.
BP is the first of the listed majors to report first quarter figures. The company reiterated that its dividend is a "priority" and said it continues to reset and rebalance BP to meet the challenges of a possible sustained period of lower prices, as capital expenditure was also cut in the period.
The FTSE 100-listed oil and gas major reported a pretax profit of USD2.27 billion in the first quarter of 2015, significantly down from USD5.27 billion a year earlier. Revenue tumbled to USD54.92 billion from USD92.98 billion, as BP's upstream division took a substantial hit, partially due to lower oil prices and reduced activity.
Its closely-watched replacement cost profit before tax was USD1.87 billion in the first quarter of 2015, down from the USD5.53 billion profit BP reported a year earlier.
Analysts at Liberum note that BP's underlying replacement cost profit of USD2.58 billion - which is adjusted for non-operating items and fair value accounting effects - came in well ahead of consensus of USD1.28 billion and Liberum's expectation of USD1.59 billion.
BP's first quarter result was boosted by a one-off, non-cash, deferred tax credit as a result of the reduction in the rate of the UK North Sea supplementary charge, announced in March. The opposite effect was reported in 2011 when the supplementary charge was increased.
Underlying replacement cost operating profit of USD2.53 billion was ahead of the USD2.10 billion market consensus, according to Liberum. BP's upstream underlying replacement cost operating profit before interest and tax of USD604 million was in line, but downstream's USD2.16 billion outstripped consensus of USD1.5 billion, the investment bank said.
BP shares were up 1.3% to 483.15 pence per share on Tuesday morning.
The upstream division, which involves exploration and production, saw replacement cost profit before tax fall to USD372 million in the quarter compared with a USD4.65 billion profit a year earlier. The result reflected significantly lower liquids and gas realizations, and lower gas marketing and trading results compared with strong results in the first quarter last year, partly offset by increased production and lower costs. The result included a USD545 million loss for BP's US upstream business.
Production from the upstream division averaged 2.30 million barrels of oil per day, up 8.3% from a year earlier due to a ramp up of major projects which started up in 2014, said the company. BP warned that production in the second quarter will fall due to maintenance work.
"Looking ahead, we expect second-quarter 2015 reported production to be lower than the first quarter, reflecting significant seasonal turnaround and maintenance activity, primarily in the Gulf of Mexico, and the Production Sharing Agreement entitlement impacts," said BP.
Oil and gas prices were "sharply" lower in the quarter, BP said, with crude averaging USD54 per barrel, down from USD108 a year earlier, which BP said was the "lowest quarterly average Brent price since the first quarter of 2009".
Gas prices also were substantially down from a year ago, falling around 40% to USD2.99 per million British thermal unit, it said.
"As expected, the upstream result was significantly affected by lower oil and gas prices as well as weaker gas marketing and trading and USD375 million costs associated with the cancellation of contracts for two deepwater rigs in the Gulf of Mexico no longer required for BP's reset drilling programme. This was partly offset by the positive impacts of higher oil and gas production, lower exploration write-offs, and also cost benefits from simplification and efficiency work throughout the segment," said BP Group Chief Executive Bob Dudley.
The downstream division reported a rise in profit to USD2.08 billion from USD794 million, driven by increased demand for the fuels, lubricants and petrochemical businesses. BP said it expects refining margins to be similar in the second quarter as they were in the first, with turnaround activity increasing "significantly".
The downstream fuels business more than doubled its replacement coast profit before interest to USD1.79 billion from only USD700 million a year earlier. The lubricants business produced replacement cost profit before tax of USD345 million, up from USD307 million, and the petrochemicals business made USD17 million profit, up from only USD4 million.
"The (downstream) result reflects the stronger overall refining environment, increased refining optimisation and production, and improved marketing performance. There was also a stronger contribution from supply and trading than a year earlier. Simplification and efficiency programmes also contributed to lower costs in the downstream," said Dudley.
BP generated a profit of USD183 million from its stake in Russia's Rosneft, down from USD518 million a year earlier, despite production in the quarter rising from a year earlier and remaining flat quarter on quarter at 1.02 million barrels per day. BP has a 19.75% interest in the Russian oil company.
Combining production from Russia and its other assets, total production averaged 3.3 million barrels of oil equivalent per day.
BP said its quarterly dividend will be 10.00 cents per share, flat quarter on quarter but up from 9.50 cents in the first quarter of 2014.
"The dividend is the first priority within our financial framework and the board is committed to maintaining it, as we have today. We can sustain this by successfully resetting our capital and cost base and rebalancing our sources and uses of cash in the prevailing oil price environment. We will continue to review progress on this as we move through the year," said Dudley.
All amounts relating to the Gulf of Mexico oil spill have been treated as non-operating items, with a net pre-tax charge of USD332 million for the first quarter due mainly to additional business economic loss claims. The total cumulative pre-tax charge for the spill stands at USD43.80 billion and BP said the overall charge does not include any provision for business economic loss claims that are yet to be received, processed or paid.
BP also booked USD215 million in non-operating restructuring charges in the quarter, bringing the total restructuring costs to USD648 million compared with the original estimated total of USD1.0 billion that BP expects to book before the end of 2015.
At the end of March, net debt stood at USD25.1 billion, equivalent to a gearing level of 18.4%, slightly lower than the USD25.3 billion reported a year ago. In terms of cash, BP reported a stronger balance of USD32.43 billion at the end of the period.
The company spent USD4.5 billion in capital expenditure in the period, down from USD5.4 billion a year earlier. The company also confirmed its "reset expectation" of USD20.0 billion of capital expenditure for the whole of 2015.
Of total capital expenditure, BP spent USD4.03 billion on its upstream division, split USD2.89 billion to US operations and USD1.13 billion to operations outside of the US, whilst only USD344 million was spent on the downstream division. Both upstream and downstream experienced severe cuts to capital expenditure compared to a year ago.
"We will also look to take advantage of any opportunities presented by the lower price environment to further reduce capital expenditure or costs," said Dudley.
Exploration expense in the quarter drastically fell to only USD172 million in the quarter compared to GBP1.45 billion in the first quarter of 2014.
"We are resetting and rebalancing BP to meet the challenges of a possible period of sustained lower prices. Our results today reflect both this weaker environment and the actions we are taking in response," said Dudley. "We are continuing to progress our planned divestment programme, we are resetting our level of capital spending, and we are addressing costs through focusing on simplification and efficiency throughout BP."
BP remains on track to divest a further USD10.0 billion of assets by the end of 2015. This total has now reached USD7.1 billion, including the agreement to sell BP's interest in the CATS business in the UK North Sea, announced last Thursday, which saw BP sell its equity stake in a major pipeline and processing facility for GBP324 million to Antin Infrastructure Partners.
Back in March, BP made a gas discovery in the North Damietta Offshore Concession in the East Nile Delta in Egypt at the Atoll-1 Deepwater exploration well, in which it holds a 100% stake. It also signed the final agreements for two West Nile Delta projects, in which it will hold a 65% stake.
BP said around USD12.0 billion will need to be invested in the region with its partner, and said production from the West Nile Delta is expected to start in 2017.
BP said oil production also began at the Sunrise Phase One oil sands project in Canada during March, in which it holds a 50% stake. By the end of 2016, the project is expected to reach full capacity of 60,000 barrels of oil per day.
By Joshua Warner; joshuawarner@alliancenews.com; @JoshAlliance
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