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BP Q1 2016 results

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Hydrocarbon Engineering,

BP has reported its results for the first quarter of 2016. Underlying replacement cost profit¹ for the quarter was US$532 million, compared with US$196 million for the previous quarter and US$2.6 billion for the first quarter of 2015. These results, compared with the previous quarter, lower costs throughout the Group more than offset the impact of significantly weaker oil and gas prices and refining margins.

Bob Dudley, BP group chief executive, said:

“Despite the challenging environment, we are driving towards our near-term goal of rebalancing BP’s cash flows. Operational performance is strong and our work to reset costs has considerable momentum and is delivering results. Furthermore, development of our next wave of material upstream projects is well on track.” The Brent oil marker price averaged US$34/bbl in the quarter, compared with US$44 in Q4 2015 and US$54 in Q1 2015, and refining margins were at the lowest quarterly average for over five years. Brent prices have so far averaged $40 in the second quarter.

“Market fundamentals continue to suggest that the combination of robust demand and weak supply growth will move global oil markets closer into balance by the end of the year,” added Dudley.

BP announced an unchanged dividend for the quarter of 10c per ordinary share, expected payment to be made in June.

Underlying operating cash flow² in the first quarter was US$3.0 billion. This excluded US$1.1 billion of payments related to the Gulf of Mexico oil spill that were offset by divestment proceeds of US$1.1 billion.

Operational performance continued to be strong with reliability of ipstream operated assets and refining availability both at 95%.

Organic capital expenditure in the first quarter was US$3.9 billion compared to US$4.4 billion in the first quarter of 2015. BP now expects total organic capital expenditure in 2016 to be around US$17 billion and, in the event of continued low oil prices, sees flexibility to move to US$15-17 billion in 2017.

Costs are also reducing; BP’s cash costs³ over the last four quarters were US$4.6 billion lower than in 2014. BP expects cash costs for 2017 to be US$7 billion lower than for 2014.

Brian Gilvary, chief financial officer, said:

“As we steadily take out more costs, the point at which we expect to be able to rebalance 2017 organic sources and uses of cash continues to move lower; we currently anticipate being able to achieve this at oil prices in the range US$50-55/bbl. This progress underpins our commitment to sustaining BP’s dividend as the first priority within our financial frame. Should prices remain low, we have the flexibility to adjust further within the financial framework.”

At the end of the quarter BP’s gearing level was 23.6%. Following the finalisation of the settlement of federal and state claims arising from the Deepwater Horizon accident, and to allow more flexibility in the current volatile oil price environment, BP intends to return to managing gearing within its historical range of 20 - 30%.

Strategic progress

In the quarter BP signed an agreement to extend the major Khazzan licence in Oman, a shale gas production sharing contract in China and an agreement to work on future opportunities with the Kuwait Petroleum Company across all lines of business. Two upstream projects have begun production since the beginning of the year: the In Salah Southern Fields project in Algeria and the Exxon-operated Point Thomson project in Alaska.

BP is also progressing its next wave of material upstream projects. Among others, the major developments of Quad 204 and Clair Ridge in the UK, Khazzan Phase 1 in Oman, Juniper in Trinidad, the Taurus/Libra phase of the West Nile Delta project in Egypt and Shah Deniz Phase 2 in Azerbaijan are all on track. BP expects projects scheduled to start up through 2016 and 2017 will put in place 500 000 boe/d of new net production capacity by the end of 2017 compared to 2015.

In the Downstream, the global roll-out of BP’s biggest fuel launch for a decade – Ultimate with ACTIVE technology – continued. This fuel achieves a significant increase in mileage per tank for customers. BP also expanded its convenience retail partnerships with new agreements in Germany and the Netherlands.

Deepwater Horizon developments

In the US, in April the Court entered the final judgment on the Consent Decree relating to the settlement of federal and state claims arising from the Deepwater Horizon incident and both the Consent Decree and settlement agreement are now effective. This is an important milestone for BP.

A charge of US $0.9 billion related to the 2010 oil spill was taken in the quarter bringing the total pre-tax cumulative charge related to the event to US$56.4 billion. The charge for the quarter included around US$0.6 billion related to business economic loss claims not previously provided for, as well as costs relating to the settlement of certain civil claims outside of the 2012 settlement with the Plaintiffs’ Steering Committee. BP has agreed simplified and accelerated procedures for processing business economic loss claims which is reflected in the quarter’s charge. It is still not possible to reliably estimate the remaining liability for these claims and BP continues to review this each quarter.

The US$1.1 billion pre-tax cash outflow related to the oil spill in the quarter included US$530 million related to the 2012 criminal settlement.

Adapted from a press release by Louise Mulhall

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