UK BP Makes Almost $1bn Upstream Loss in 2015

The low oil price slashed BP’s profits further in 2015, for which it reported on February 2 a replacement-cost loss of $5.162bn, compared with a profit of $8.073bn the year before.  

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, BP said February 2.

But the cost of the April 2010 Gulf of Mexico Macondo settlement was $11.709bn last year. Without that and some other items the company made a profit of $5.905bn over the year.

To date BP has spent $55.5bn on the consequences of that spill, of which the clean-up operation itself accounted for almost a quarter ($14.3bn).

Its average gas and liquids sales prices were significantly less, and it paid up for rig cancellations, although it did produce a little more liquids. It expects underlying production for the year to equal roughly this year’s, and for the present quarter to equal Q4 2015. Gas production was 5.95bn ft³/d, compared with 6.015bn ft³/d in 2014.

It wrote off a little less in exploration costs than in the year before. Among its impairments were $395mn in the Krishna Godavari D6 basin, as the Indian government did not follow through with plans to raise the wellhead price; $432mn in Libya; and $544mn from the Utica shale in the northeast US, where its gas production plans have reached a standstill.

BP said it remained focused on cost discipline and efficiency. Annual controllable cash costs in 2015 were $3.4bn lower than in 2014 and are on track to be close to $7bn lower in 2017. Some 4,000 redundancies have been announced. BP has now completed the $10bn divestment programme announced in October 2013 and plans a further $3-5bn during 2016.

Organic capital expenditure for 2015 was $18.7bn. BP expects annual organic capital expenditure to remain between $17bn and $19bn in 2016 and 2017 and to be at the lower end of that range in 2016. It has completed its $10bn divestment plan announced in 2013 and it has decided to retain the dividend at $0.1/share, which analyst Malcolm Graham-Wood said was "a far higher rate than this company should be paying."

Selected items from annual results

Change at the top

BP has appointed Lamar McKay to the new position of deputy group CEO. He will assume some of the duties of the 60-yr old CEO Bob Dudley. McKay now runs BP’s upstream segment and he will be based in London. His replacement will be Bernard Looney, currently running the production side of upstream.

McKay’s other responsibilities will include strategy and long-term planning, safety and operational risk, technology, and corporate governance including ethics and compliance. BP America will continue to report to him.

Katrina Landis, executive vice president of corporate business activities, leaves the company on May 1 following a career of 24 years with BP. Her duties will be spread across other team members and she will not be replaced.

Dudley said: “These changes simplify, focus and better align accountabilities within our experienced and versatile senior team. In particular Lamar’s new role will allow us to further concentrate our attention on BP’s highest priorities through this challenging time for our whole industry.”

William Powell