BP
deepens capex cuts, surprises with Rosneft profit
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[February 03, 2015]
By Dmitry Zhdannikov and Ron Bousso
LONDON (Reuters) - BP said it would deepen
capital investment cuts this year to adapt to lower oil prices after a
surprise contribution from its stake in Russia's firm Rosneft helped it
to beat quarterly profit forecasts.
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The plunge in oil prices was further reflected in a $3.6 billion
impairment charge relating to assets in the North Sea and Angola.
Fellow British energy company BG Group Plc also wrote down the value
of its business by almost $6 billion on Tuesday.
BP's shares were up 2.2 percent at 1240 GMT, slightly
underperforming the index and rising oil prices, although investors
praised the company for one of the most robust performances among
its peers.
BP also surprised investors by reporting underlying replacement cost
profit at $2.2 billion versus expectations of $1.5 billion for the
last three months of 2014.
The upbeat result was explained in large part by a profit of $470
million from Rosneft, hard hit by Western sanctions over Moscow's
role in Ukraine as well as the falling oil prices.
BP's profit from the 19.75 percent Rosneft stake was boosted by a
change in the Russian firm's foreign exchange accounting system. It
was based on provisional numbers and could change.
Several analysts had expected BP to report a fourth quarter loss of
up to $750 million from its stake in Rosneft.
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"Rosneft's contribution did not reflect FX losses on its borrowings
and were hence higher than the headline consensus forecast," said
analysts at Morgan Stanley.
Rosneft accounts for around one third of BP's oil production at just
above 1 million barrels of oil equivalent per day and around nine
percent of its profits in 2014.
BP's Chief Financial Officer Brian Gilvary said he expected
Rosneft's dividend to halve from $693 million received by BP in
2014.
The profit from Rosneft offset a 42 percent decline in BP's overall
profits from oil production, known as upstream. Refining and trading
also came to the rescue posting a $1.21 billion profit compared to
$70 million a year earlier.
Analysts said they were pretty happy with the upstream numbers after
rival Royal Dutch Shell <RDSa.L> reported poor earnings from its
equivalent business.
According to analysts from Jefferies BP recorded after-tax upstream
margins around $8 per barrel - "towards the top-end of the peer
group this reporting period".
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RESETTING BP
BP followed its rivals with a string of budget cuts and asset
writedowns as a result of the halving of oil prices since July to
around $55 a barrel.
"We have now entered a new and challenging phase of low oil prices
through the near and medium term," said chief executive Bob Dudley
said. "Our focus must now be on resetting BP."
BP had already announced a $1 billion restructuring plan that will
include thousands of lay-offs on which it had already spent $433
million. It has also imposed a company-wide pay freeze.
While several peers slashed 2015 spending plans to tackle lower oil
prices, Royal Dutch Shell warned against "overreacting" to the
declines.
BP said it would cut its investment budget to $20 billion in 2015,
down 13 percent from the actual $22.9 billion in 2014 and further
below initial guidance of $24-25 billion a year for 2013-2014. It
maintained its quarterly dividend at 10 cents per ordinary share.
"Compared to peers, we believe BP has offered one of the most
responsive outlooks to the lower near-term crude environment,"
Jefferies analyst Jason Gamel said.
(Reporting by Dmitry Zhdannikov; editing by Jason Neely and Keith
Weir)
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