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BP announces further progress towards rebalancing organic cash flows in 2017
BP has reported a profit for the third quarter of 2016 of USD933 million on an underlying replacement cost basis. This compares to USD720 million profit for the previous quarter and USD1.8 billion for the third quarter of 2015. The quarter’s result was affected by a weaker price and margin environment. It was also negatively impacted by several mainly one-off and non-cash items in the Upstream. However, the result also included benefits from lower cash costs being incurred throughout the Group and a positive one-time tax credit. Underlying operating cash flow, which excludes pre-tax Gulf of Mexico payments, was $4.8 billion for the quarter. It was $13.3 billion for the first nine months of the year, benefitting from reliable operations and lower cash costs. BP announced an unchanged dividend for the quarter of 10c per ordinary share, expected to be paid in December.
“We continue to make good progress in adapting to the challenging price and margin environment,” Brian Gilvary, BP’s chief financial officer said. “We remain on track to rebalance organic cash flows next year at USD50 to USD55 a barrel, underpinned by continued strong operating reliability and momentum in resetting costs and capital spending. At the same time we are investing in the projects, businesses and options to deliver growth in the years ahead.” BP’s cash costs over the past four quarters were USD6.1 billion lower than in 2014, continuing the Group’s progress towards 2017 cash costs being USD7 billion lower than in 2014. BP’s expectation for 2016 organic capital expenditure was reduced again and it is now expected to total around USD16 billion, compared to original guidance of USD17-19 billion given at the start of the year. BP expects capital expenditure in 2017 to be between USD15 billion and 17 billion.
Cash divestment proceeds for the year to date, including the partial sale of BP’s shareholding in Castrol India, are now USD2.7 billion. At the end of the third quarter, BP’s gearing level was 25.9 per cent, within the targeted 20-30 per cent range. The Brent oil price averaged USD46 a barrel in the quarter, compared with USD50 a barrel in 3Q 2015, and gas prices outside the US were also weaker. Refining margins were steeply down from a year earlier, depressed by high product stock levels. BP reported an overall headline profit for the quarter of USD1.6 billion, which includes a net gain of USD728 million for non-operating items and fair value accounting effects. This is comparable to a profit of USD46 million a year earlier and a loss of USD1.4 billion in the second quarter of this year, when significant charges associated with the Gulf of Mexico oil spill were taken.
Both of BP’s main operating segments continued to demonstrate strong operational performance, with Upstream plant reliability at 95 per cent and refining availability in Downstream at 95.4% in the first three quarters of the year. BP’s Downstream segment delivered resilient results despite refining margins weaker than both the previous quarter and, particularly, a year earlier. Underlying pre-tax replacement cost profit was $1.4 billion, compared with $1.5 billion for 2Q 2016 and USD2.3 billion for 3Q 2015. Compared with a year earlier, the impact of the lower refining margin environment was partially offset by an increased retail performance and cost reductions across the segment.
BP’s Upstream segment reported an underlying pre-tax replacement cost loss of USD224 million, compared with profits of USD29 million for 2Q 2016 and USD823 million for 3Q 2015. Compared with a year earlier, the result reflected weaker oil and non-US gas prices and lower gas marketing and trading results, together with the impact of higher exploration write-offs and rig cancellation charges. The impacts of these were partially offset by benefits of cost reduction programmes in the Upstream. BP estimated its share of Rosneft net income for the third quarter to be USD120 million, compared with USD246 million for 2Q 2016 and USD382 million for 3Q 2015. In July BP received a dividend of USD332 million, representing 35 per cent of BP’s share of Rosneft’s 2015 IFRS net income.
In the Upstream, BP announced an agreement for a second production sharing agreement with CNPC for shale gas in China and also amendment of a number of concessions in Egypt that enabled the fast-track development of the Nooros field. In September, BP and Det Norske completed the formation of their Norwegian joint venture. On completion of the sale of BP Norge, BP received a 30 per cent equity interest in Aker BP. The In Amenas Compression project in Algeria is on schedule to commence operation in the fourth quarter, which would make it the fifth Upstream major project to start this year. In October, BP announced its decision not to continue its exploration programme in the Great Australian Bight, off the south coast of Australia. In the Downstream, BP continues to see marketing growth with retail volumes increasing by 3 per cent in the year to date and two new convenience partnerships in Europe. Willie Roaf Jersey
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