BP has reported a profit of $115 million for 2016 compared to its 2015 loss of $6.5 billion and citing disciplined expansion in gas, long-term low-cost oil and retail marketing as the way forward this year.
Bob Dudley, BP group chief executive, commented: “2016 was the year we made significant strides in creating a stronger platform for growth. We launched six major project start-ups - from Algeria to the Gulf of Mexico - and made final investment decisions on a further five major projects. And we see exciting opportunities ahead.”
Underlying replacement cost profit for fourth quarter of 2016 was $400 million, compared with $196 million for the same period in 2015 and $933 million for the third quarter of 2016. Compared to a year earlier, the quarter’s result benefited from higher oil prices and significantly lower costs, offset by weaker refining margins and higher turnarounds in the downstream market.
Gulf of Mexico legacy
BP is moving towards completion of the process for resolving business economic loss claims arising from the 2010 Deepwater Horizon oil spill, and amounts to resolve remaining claims are expected to be substantially paid in 2017.
In 2017 cash payments related to the spill are expected to be lower than in 2016, around $4.5-5.5 billion, before falling sharply to around $2 billion in 2018 and to a little over $1 billion a year from 2019. The total cumulative charge for the incident is now $62.6 billion on a pre-tax basis, $44.1 billion after tax.
Dudley says the company is now prepared for any volatility in oil pricing. “With our Deepwater Horizon financial liabilities now substantially behind us, BP is fully focused on the future.”
Oil and Gas Interests
During the fourth quarter BP announced a series of important agreements, including increasing long-term low-cost oil interests through:
• renewal of BP’s 10 percent interest in the ADCO onshore oil concession in Abu Dhabi, which has a life of 40 years;
• taking a material stake in emerging world-class, low-cost gas basins offshore Mauritania and Senegal through a farm-in agreement with Kosmos Energy;
• extending BP’s existing major gas positions: in Egypt, by acquiring a 10 percent interest in the world-class Zohr gas field in the Mediterranean; in Oman, finalising agreements to extend the Khazzan gas project by 50 percent; and in Indonesia by acquiring an additional three percent in the Tangguh LNG project;
• building from significant incumbent oil positions: in Azerbaijan, BP and partners agreeing principles to extend the ACG oil concession by 25 years to 2050; and in the US Gulf of Mexico, BP sanctioning the development of the Mad Dog 2 project, at costs 60 percent lower than originally estimated, expected to begin production in 2021; and
• building on BP’s leading retail and convenience expertise, agreeing a strategic fuel and convenience partnership in Australia with the leading supermarket chain Woolworths, including the acquisition of their network of more than 500 retail sites.
Two new major upstream projects began production during the fourth quarter: the In Amenas compression project in Algeria, and the Thunder Horse South Expansion project in the U.S. Gulf of Mexico, which came onstream 11 months earlier than planned and $150 million under budget. BP also won interests in exploration acreage in the Mexican Gulf of Mexico.
BP now anticipates balancing its organic sources and uses of cash by the end of 2017 in a Brent oil price environment of around $60 a barrel.
“Looking beyond this year, we expect organic free cash flow to grow into the medium term, supported strongly by the ramp-up of production from new upstream projects, strong marketing growth and the positive impact of these portfolio additions,” said Brian Gilvary, BP chief financial officer.