BP's Strong Performance Is Marred by One-Off Charges -- 3rd Update
By Sarah Kent
LONDON-- BP PLC on Tuesday delivered a relatively strong set of earnings, but was hit hard by one-time costs from the U.S. tax overhaul and the Gulf of Mexico oil spill, as it seeks to consolidate its position among Big Oil's elite.
BP's underlying profit in the fourth quarter soared to $2.1 billion, compared with $400 million a year earlier, not including the one-time costs. The British oil-and-gas company was buoyed by a recovering crude market during a quarter when oil prices averaged over $61 a barrel--up 24% from the same period in 2016.
On paper, though, the British oil giant's profit was effectively wiped out by a nearly $1 billion loss related to U.S. corporate-tax changes and a $1.7 billion charge from unexpectedly high settlements from the Deepwater Horizon accident. The company recorded a $583 million quarterly replacement-cost loss--a number analogous to the net income that U.S. oil companies report.
BP said the U.S. tax overhaul enacted late in 2017 will be positive in the long term. The company says its Gulf of Mexico costs are manageable and are largely wrapping up.
The net loss shadowed what was overall a set of financial results that executives said they were proud of. For all of 2017, BP said its replacement cost profit was $2.8 billion, compared with a loss of $1 billion in 2016. It was BP's first annual profit since 2014. The company reported stronger production and healthy earnings from its refining and marketing division.
The company's return to profit last year reflects early success in delivering on its growth plan. Excluding its nearly 20% share in Russian state oil company, PAO Rosneft, BP's production rose 12% in 2017 and in a sign of growing financial resilience, the company began a share buyback program in the fourth quarter.
Chief Executive Bob Dudley described 2017 as "one of the strongest years in BP's recent history," adding that the company was increasingly confident it could continue to deliver growth.
BP's share price dropped over 2% in London trading Tuesday morning, though losses narrowed to 0.9% later. The fall was largely a result of the negative sentiment that has driven a stock selloff around the world, and BP was down less than the FTSE 100 and rival Royal Dutch Shell PLC.
BP Chief Financial Officer Brian Gilvary said the company expects to cover its spending and dividend with cash from operations at $50 a barrel this year. The company is targeting a break-even price of $35 to $40 a barrel by 2021.
"This time last year we were talking about $60 a barrel, so we have a pretty good trajectory," Mr. Gilvary said.
The company's net debt rose 6% from a year earlier to $37.8 billion in 2017, although it was on a downward trajectory in the fourth quarter compared with the previous three months.
BP's earnings are the latest in a choppy reporting season for big oil companies. Shell's net profit tripled last year, but a drop in cash flow in the fourth quarter raised concerns among investors. U.S. rivals Exxon Mobil Corp. and Chevron Corp. both missed earnings expectations and suffered substantial selloffs as a result.
BP used its earnings announcement as an opportunity to advance a campaign to convince shareholders it can regain its position among the elite tier of big energy companies. The company has lagged behind its peers since the fatal Deepwater Horizon explosion and oil spill in the Gulf of Mexico eight years ago. The disaster forced the company to sell off billions of dollars in assets to help finance a bill to cover clean up and legal costs that has ballooned to more than $60 billion.
BP outlined a path last February to boost profit and return to its former size by the early 2020s, but analysts had raised concerns about the company's longer-term growth outlook. BP Tuesday laid out a pathway to continue boosting production and returns out to 2025 and said it would add 900,000 barrels a day of new oil and gas production by 2021 compared with 2015. The company had previously said it would pump an additional 800,000 barrels a day by 2020.
"We see growth without the need for acquisitions," said the company's chief of exploration and production, Bernard Looney.
Write to Sarah Kent at firstname.lastname@example.org
(END) Dow Jones Newswires
February 06, 2018 10:17 ET (15:17 GMT)Copyright (c) 2018 Dow Jones & Company, Inc.