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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 reduced activity, partially offset by the downstream division which experienced a lift in earnings.
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 as revenue tumbled to USD54.92 billion from USD92.98 billion as its 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.
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 is due to fall due to maintenance work.
Oil and gas prices were "sharply" lower in the quarter, with crude averaging USD54 per barrel from USD108, which BP said was the "lowest quarterly average Brent price since the first quarter of 2009".
"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.
BP's first quarter result included 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.
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".
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.
BP said its quarterly dividend will be 10.00 cents per share.
"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.
At the end of March, net debt stood at USD25.1 billion, slightly down from USD25.3 billion a year ago and the company spent USD4.5 billion in capital expenditure in the period, down from USD5.4 billion.
"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.
By Joshua Warner; joshuawarner@alliancenews.com; @JoshAlliance
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