BP shares drop as profits halve despite boost from rising oil prices
- Fourth-quarter underlying replacement cost missed analysts' expectations
- Underlying profit fell 56% to $2.6billion (£2.1billion) last year
- BP needs oil to fetch $60 a barrel this year to effectively break even
Recent higher oil prices have given a boost to BP towards the end of the year, but underlying profits still halved compared to the year before.
The oil giant said fourth-quarter underlying replacement cost – its measure of profit – came in at $400million (£322million), short of analysts’ expectations of $560million (£450million).
This resulted in a 56 per cent fall in full-year underlying profits to $2.6billion (£2.1billion) from $5.9billion (£4.8billion) in 2015. The news sent the shares 2.2 per cent lower to 465.65p in morning trading.
Troubled waters: Despite a rebound in oil prices, BP profits still took a hit last year
The price of a barrel of Brent crude has risen above $50 again from $44 in November 2016, when Opec, the cartel of mainly Middle Eastern oil producing countries, agreed to cut production to raise prices for the first time in two years.
BP said it expected to balance its books at an oil price of around $60 a barrel by the end of 2017.
Bob Dudley, BP group chief executive, said: ‘We have delivered solid results in tough conditions - and are well prepared for any volatility in oil pricing.’
Laith Khalaf, senior analyst at Hargreaves Lansdown, said: ‘The pricing environment remains challenging for the oil majors, and while things are looking better than they did a year ago, we’re still a long way short of those halcyon days when oil traded at over $100 a barrel.
‘Indeed BP needs oil to fetch $60 a barrel this year to effectively break even, and with Brent currently trading at around $56, it is still dependent on fair winds from the commodity markets to push it along.’
Meanwhile, the Gulf of Mexico oil spill continues to cast a shadow on BP's financial performance, although Dudley said these costs were now 'substantially behind us'.
The group said it expects cash payments related to the oil spill to fall from $7.1billion in 2016 to $1billion a year from 2019. The total bill has now hit $62.6billion (£50.4billion).
BP said it would continue to pay a quarterly dividend of 10 cents. Khalaf said that the dividend worked out as an annual yield of almost 7 per cent.
‘That premium yield reflects the limited scope for dividend growth in the immediate future, combined with the risk of pressure on the dividend if commodity markets fall backwards again,’ he added.
‘One worrying aspect of the dividend is the colossal amount being paid out in shares rather than cash, which increases the number of mouths to feed next time a payment is made.'
Gulf of Mexico spill: The total bill for BP has now hit $62.6billion (£50.4billion)
BP aims to have cut 7,000 jobs over the two years to the end of 2017 and expects to make savings of $7billion by the end of this year as it has been slashing costs in the face of weak oil global oil prices and sliding refining margins.
But it has also been making recent acquisitions, snapping up Australian gas stations at the end of last year and striking a deal to take a 10 per cent stake in Abu Dhabi Company, giving it access to the emirate's largest oilfields.
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