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LONDON (Alliance News) - BP PLC shares fell on Tuesday after the company reported more than a USD5.00 billion loss in 2015 as its upstream division was hit by lower oil prices and it booked large charges related to the oil spill in the Gulf of Mexico.
BP shares were trading down 5.4% to 347.12 pence per share on Tuesday morning, the worst performer in the FTSE 100.
The oil and gas major reported an underlying replacement cost profit that was way below analysts expectations for the last quarter of 2015, causing the oil and gas company's underlying profit for the full year to more than halve, with large amounts of items causing BP to swing to an overall replacement cost loss for the year.
BP said it made an underlying cost replacement profit of USD196.0 million in the fourth quarter of 2015, way below the USD730.0 million analysts were expecting, according to a market consensus provided by BP.
Replacement cost profit is a standard measure used in the oil industry that takes into account the price of oil, and the underlying result is adjusted for non-operating items and fair value accounting effects.
That USD196.0 million underlying profit in the fourth quarter is down from USD2.23 billion a year ago and down from USD1.81 billion in the third quarter of 2015.
That steep drop in underlying profit was caused by the company's upstream division, which is focused on production, reporting an underlying replacement cost loss before interest and tax of USD728.0 million in the last three months of the year - swinging from a USD2.24 billion profit a year earlier and from a USD823.0 million profit in the third quarter of 2015.
The downstream segment reported an underlying replacement cost profit of USD1.21 billion in the final quarter, flat year-on-year but down from USD2.30 billion in the third quarter of 2015.
"Despite strong operational performance and growing cost reductions, the lower underlying result was predominantly driven by the impact of steeply lower oil and gas prices on BP's upstream segment, which reported a pre-tax loss for the quarter. This was partially offset by a strong set of counter-cyclical results from the downstream segment," said BP.
The company booked USD2.60 billion in non-operating post-tax charges in the final quarter, primarily against its upstream production assets as well as restructuring costs, which led to BP reporting a total replacement cost loss of USD2.23 billion in the last quarter of the year compared to a USD969.0 million loss a year earlier.
For the full year, BP reported an underlying replacement cost profit, which excludes certain items, of USD5.90 billion, less than half the USD12.13 billion booked in 2014. BP booked a net charge for non-operating items of USD11.27 billion which caused BP to swing to an overall replacement cost loss of USD5.16 billion in 2015 from a USD8.07 billion profit a year earlier.
The majority of those non-operating items for the full year are related to the Gulf of Mexico oil spill, with a pretax charge of USD443.0 million being booked in the final quarter to push the total for the year to USD11.95 billion.
The upstream division reported an underlying replacement cost profit of USD1.19 billion for the full year, a dramatic fall from USD15.20 billion a year earlier as the downstream segment helped salvage the company's earnings by reporting a rise in underlying profit to USD7.54 billion from USD4.44 billion a year ago.
Revenue for the full year came in at USD225.98 billion, falling from USD358.67 billion a year earlier as lower oil prices offset a rise in production, with underlying operating cashflow falling to USD20.30 billion from USD32.80 billion.
That led BP to swing to a pretax loss of USD9.57 billion in 2015 from a USD4.95 billion profit in 2014.
BP, as expected, maintained its dividend for the year, announcing an interim dividend for the final quarter of the year of 10.0 cents per share.
Production for the full year rose to 3.27 million barrels of oil equivalent per day from 3.15 million barrels a day a year ago - however, average oil prices in 2015 fell to only USD34.78 per barrel of oil equivalent compared to USD60.85 per barrel in 2014.
Moving forward, BP said it expects production to remain broadly flat in 2016, but warned that oil prices will remain challenging in the near term. It also warned its downstream division will see its refining margins fall in the first quarter of the year.
Aside from the results, the market was eagerly awaiting news on BP's progress with its cost reductions and guidance moving forward.
BP said it has taken around USD1.50 billion in restructuring charges over the last five quarters and is expecting this to total USD2.50 billion by the end of 2016, as the company announced it would cut 4,000 contractor roles in the upstream division during 2016 and 3,000 in the downstream division before the end of 2017.
BP said annual controllable cash costs were USD3.40 billion lower than in 2014, and BP said those costs are on track to be USD7.00 billion lower by the end of 2017, which is higher than its previous guidance for those costs to be USD6.00 billion lower.
Organic capital expenditure for the year totalled USD18.70 billion, a touch under its USD19.00 billion guidance and BP reiterated that its budget for 2016 and 2017 is set to remain between USD17.00 to USD19.00 billion. However, BP said expenditure in 2016 will be at the "lower end of that range".
"We will keep the capital frame under review as we move through 2016 and beyond," said Brian Gilvary, BP's chief financial officer. "Should current conditions persist for longer than anticipated, we expect that all the actions we are taking will capture more deflation and so drive the point at which we balance our organic sources and uses of cash lower than the USD60 per barrel that we indicated at last quarter's results."
BP said it has also completed its USD10.00 billion divestment programme that was launched back in October 2013, generating USD2.80 billion in proceeds during 2015.
Net debt at the end of 2015 stood at USD27.20 billion to create a net debt ratio of 21.6%, compared to net debt of USD22.60 billion at the end of 2014 when the net debt ratio stood at 16.7%.
On Monday, BP promoted Lamar McKay to become the company's deputy to work under Chief Executive Bob Dudley. McKay was the chief executive of BP's upstream division prior to the promotion, with current chief operating officer of production, Bernard Looney, taking over his role.
By Joshua Warner; joshuawarner@alliancenews.com; @JoshAlliance
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