BP replacement cost profit down from 2015

$933 million third-quarter profit up from last quarter, down from $1.8 billion for third quarter 2015; company cites weaker prices

KRISTEN NELSON

Petroleum News

BP released third quarter results Nov. 1, reporting a profit of $933 million on an underlying replacement cost basis. That compares to $720 million profit in the second quarter and $1.8 billion in the third quarter of 2015.

BP said third-quarter results were affected by a weaker price and margin environment, and also negatively impacted by one-off and non-cash items in the upstream.

There were also benefits from lower cash costs throughout BP, the company said, and a positive one-time tax credit.

“We continue to make good progress in adapting to the challenging price and margin environment,” BP’s Chief Financial Officer Brian Gilvary said. “We remain on track to rebalance organic cash flows next year at $50 to $55 a barrel, underpinned by continued strong operating reliability and momentum in resetting costs and capital spending.”

BP said its cash costs over the past four quarters were $6.1 billion lower than in 2014, continuing progress toward a goal of 2017 cash costs $7 billion lower than 2014.

Its upstream segment had a pre-tax replacement cost loss of $224 million, the company said, compared with profits of $29 million for the second quarter and $823 million for the third quarter of 2015, reflecting weaker oil and non-U.S. gas prices and lower gas marketing and trading results.

In a transcript of the third-quarter analysts’ call, posted on BP’s website, Gilvary is quoted as saying Brent crude averaged $46 per barrel in the third quarter, largely flat with the second quarter, while Henry Hub natural gas prices recovered in the third quarter, averaging $280 per million British thermal units, well above the $2.10 average in the second quarter.

Gilvary said BP expects improved results from its upstream business into 2017 based on a stronger outlook for both oil and gas prices.

He said capital expenditure is expected to be some $16 billion in 2016, with 2017 spending expected to be between $15 billion and $17 billion, a 30-40 percent drop in capital spending by 2017 compared to 2013 levels.

In the question and answer segment of the analysts’ call Gilvary was asked if BP has changed its mind about the Alaska LNG project, based on recent comments by its partners. BP has been in partnership with ConocoPhillips, ExxonMobil and the state of Alaska on AKLNG.

In response to the desire of its producer partners to hold off on a move to front-end engineering and design, FEED, from the pre-FEED phase which is wrapping up, the state has moved to take the lead in the project.

BP’s transcript quotes Gilvary as saying there is still 30 trillion cubic feet of resource in Alaska. He said he understood the most recent comments of BP’s partners in the project.

“I think gas is a great opportunity for Alaska going forward,” Gilvary said, “and for those of us that have lived around and seen this project over many, many years, I am sure it will have more machinations going forward. But there is nothing firm at this point in terms of where the point forward is, in terms of that state in the resource space.

“But there is a great resource base discovered. We know it is there; it is being reinjected today.

“I think the short-term economics make it difficult, but in terms of long-term resource, it may well be a great opportunity to bring to market.

“But right now,” Gilvary said, “nothing is happening.”