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BP says recovery in sight amid profit slump
publisherElla
time2016/11/02
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BP voiced cautious optimism Tuesday about the outlook for oil markets and its own business, as it reported a year-on-year slump in third-quarter profit together with an 8.4% drop in liquids output.
In a briefing for investors, chief financial officer Brian Gilvary said BP expected refining margins to recover somewhat and the company was on track to break even at oil prices of $50-55/b in 2017. He did not foresee prices "majorly north" of that range.
Pointing to efficiency gains and recent asset sales, Gilvary said: "We are building a business model in the upstream that is sustainable in a $50/b world".
Gilvary said the pace of oil industry recovery depended partly on OPEC's meeting at the end of this month, which is intended to agree an output curb.
However, "we expect inventories to decline gradually next year, supported by continued demand growth and sustained reductions in non-OPEC supply," he said.
"High product stock levels continue to keep refining margins under pressure, with OECD product stocks at their highest level in 30 years."
BP's global average refining marker margin was $11.6/b in the third quarter, down from $20/b a year earlier.
"We expect the stronger outlook for both oil and gas prices to support improved realizations in our upstream businesses into next year," Gilvary said.
"We expect refining margins to recover from the current lows, with modest improvement next year, but still well below the very high margins of 2015."
BP said capital expenditure this year would be $16 billion, compared with an estimate of $17-$19 billion given at the start of the year, and reiterated a range of $15-$17 billion for next year, putting capital expenditure 30-40% below 2013 levels.
The company's overall oil and gas output in the third quarter fell 5.9% year on year to an average 2.11 million b/d of oil equivalent, while liquids output was down 8.4% at 1.13 million b/d.
It forecast slightly higher upstream output in the current quarter.
The third-quarter reduction was caused by weather issues, fire damage at a gas plant in the Gulf of Mexico, and the effect of BP's production-sharing contract in Iraq.
Regarding the downstream segment, BP said it expected a higher level of maintenance in the fourth quarter than in the third quarter.
In terms of longer-term production, Gilvary said approval of the Mad Dog phase 2 project in the US Gulf of Mexico was "imminent", adding the development cost would be below $10 billion.
Gilvary said BP's redevelopment of the UK Schiehallion field was "96% complete" and the field would come back on stream in the first half of next year, with the Clair Ridge expansion project -- also west of the Shetland Islands -- due on stream at the end of next year or early 2018.
PROFIT SLUMPING
BP's underlying replacement cost profit, after adjusting for one-off items such as asset sales as well as inventory changes, was barely half the amount of a year earlier, at $933 million.
It said its downstream results were "resilient", with an underlying pre-tax profit in the downstream segment of $1.4 billion, compared with $2.3 billion a year earlier.
In the upstream sector, it reported an underlying pre-tax loss of $224 million, compared with a profit of $823 million a year earlier.
The company benefited from a negative effective tax rate in the third quarter, partly reflecting a cut in UK upstream taxation, but also reported exploration write-offs of $687 million, almost triple the level a year earlier and mainly relating to Brazilian assets acquired from Devon Energy in 2010.
Gilvary said the company expected payouts totaling $6-$7 billion this year in relation to the Macondo Gulf of Mexico oil spill in 2010, falling to $3.5-$4.5 billion next year, with further lower totals after that.
In a briefing for investors, chief financial officer Brian Gilvary said BP expected refining margins to recover somewhat and the company was on track to break even at oil prices of $50-55/b in 2017. He did not foresee prices "majorly north" of that range.
Pointing to efficiency gains and recent asset sales, Gilvary said: "We are building a business model in the upstream that is sustainable in a $50/b world".
Gilvary said the pace of oil industry recovery depended partly on OPEC's meeting at the end of this month, which is intended to agree an output curb.
However, "we expect inventories to decline gradually next year, supported by continued demand growth and sustained reductions in non-OPEC supply," he said.
"High product stock levels continue to keep refining margins under pressure, with OECD product stocks at their highest level in 30 years."
BP's global average refining marker margin was $11.6/b in the third quarter, down from $20/b a year earlier.
"We expect the stronger outlook for both oil and gas prices to support improved realizations in our upstream businesses into next year," Gilvary said.
"We expect refining margins to recover from the current lows, with modest improvement next year, but still well below the very high margins of 2015."
BP said capital expenditure this year would be $16 billion, compared with an estimate of $17-$19 billion given at the start of the year, and reiterated a range of $15-$17 billion for next year, putting capital expenditure 30-40% below 2013 levels.
The company's overall oil and gas output in the third quarter fell 5.9% year on year to an average 2.11 million b/d of oil equivalent, while liquids output was down 8.4% at 1.13 million b/d.
It forecast slightly higher upstream output in the current quarter.
The third-quarter reduction was caused by weather issues, fire damage at a gas plant in the Gulf of Mexico, and the effect of BP's production-sharing contract in Iraq.
Regarding the downstream segment, BP said it expected a higher level of maintenance in the fourth quarter than in the third quarter.
In terms of longer-term production, Gilvary said approval of the Mad Dog phase 2 project in the US Gulf of Mexico was "imminent", adding the development cost would be below $10 billion.
Gilvary said BP's redevelopment of the UK Schiehallion field was "96% complete" and the field would come back on stream in the first half of next year, with the Clair Ridge expansion project -- also west of the Shetland Islands -- due on stream at the end of next year or early 2018.
PROFIT SLUMPING
BP's underlying replacement cost profit, after adjusting for one-off items such as asset sales as well as inventory changes, was barely half the amount of a year earlier, at $933 million.
It said its downstream results were "resilient", with an underlying pre-tax profit in the downstream segment of $1.4 billion, compared with $2.3 billion a year earlier.
In the upstream sector, it reported an underlying pre-tax loss of $224 million, compared with a profit of $823 million a year earlier.
The company benefited from a negative effective tax rate in the third quarter, partly reflecting a cut in UK upstream taxation, but also reported exploration write-offs of $687 million, almost triple the level a year earlier and mainly relating to Brazilian assets acquired from Devon Energy in 2010.
Gilvary said the company expected payouts totaling $6-$7 billion this year in relation to the Macondo Gulf of Mexico oil spill in 2010, falling to $3.5-$4.5 billion next year, with further lower totals after that.
BP's debt gearing ratio rose slightly to 25.9% at the end of the quarter.
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