BP profits down 30% on cost of Gulf spill compensation
Production declines as oil giant sells off assets to compensate victims of Deepwater Horizon explosion
BP PLC's fourth-quarter profits fell 30 per cent as the asset sales that it has pursued to compensate victims of the Gulf of Mexico oil disaster reduced production.
The company said Tuesday that net income slid to $1.04 billion US from $1.49 billion in the same quarter the year before. A number of factors were behind the decline, with lower production levels in the wake of the asset sales a key factor.
Overall production, excluding Russia, fell 1.9 per cent to the equivalent of 2.25 billion barrels of oil a day. BP said it expects production to decline this year because of the expiration of a concession in Abu Dhabi.
Price drop pulls down profits
A drop in prices for refined products and costs related to new projects also weighed on BP's profits, despite strong results at Rosneft, the Russian company in which BP holds a 19 per cent stake.
Still, Chief Executive Bob Dudley delivered an upbeat forecast, citing increased production in the North Sea, Angola and Gulf of Mexico and the completion of major projects for the production of crude oil and natural gas, as well as refined products such as gasoline.
Adjusted for the effects of divestments, the company said "underlying" production rose 3.7 per cent.
"These achievements underpin our financial targets for 2014 and lay the foundation for continued growth in sustainable free cash flow," he said.
The Deepwater Horizon spill in the Gulf of Mexico continues to eat into earnings, though. Expenses related to the 2010 disaster cut pre-tax profit by $189 million in the quarter and $469 million for the full the year.
The explosion on the Deepwater Horizon drilling rig killed 11 workers and released millions of gallons of oil into the Gulf, wreaking economic havoc and prompting environmental damage across several southern states.
BP has set up a $20 billion trust fund to compensate victims of the spill. As of Dec. 31, 2013, charges to the fund amounted to $19.39 billion, leaving $662 million that could be charged to the trust fund with no net impact on earnings.
More asset sales expected
The spill, which created a huge furor in the U.S., prompted the company to transform its business. It has sold off a little under $40 billion worth of assets in response, partly to fund the compensation schemes. More assets are expected to be sold over the coming couple of years.
Analysts say the overall numbers were largely in line with expectations.
"The Gulf of Mexico fallout is still not complete, although, all things being equal, the rump of the claims seem to be well provisioned," said Richard Hunter, head of equities at Hargreaves Lansdown Stockbrokers.
"More positively, underlying production increased, net debt has fallen, and the company's transformation into a more lean and focused business is well underway, particularly given its divestment program."
BP shares were down 1.6 per cent at 466 pence in London.
For the year as a whole, BP's profit more than doubled to $23.5 billion from $11 billion.