Divi restored but BP's earnings disappoint

1st Feb 2011 07:03

As expected, BP has resumed dividend payments with a pay-out of 7 cents but fourth quarter earnings failed to meet market expectations and the oil company announced that it is putting up its Texas City refinery and others up for sale. BP's replacement cost profit for the fourth quarter of 2010 was $4.61bn, compared to a profit of $3.45bn the year before. The 2010 fourth quarter figure includes a pre-tax charge of $1bn related to the Gulf of Mexico oil spill. Adjusted earnings of $4.4bn, which exclude non-operating items and fair value accounting effects, were below the market consensus forecast of $4.9bn. For the full year, the company reported a loss of $4.91bn, including a total pre-tax charge related to the Gulf of Mexico (GoM) oil spill of $40.9bn. In 2009, it had made a replacement cost profit of $13.96bn. Cash expenditures relating to the GoM incident were $5.4bn in the fourth quarter and $17.7bn for the year pre-tax. This includes contributions by BP to the trust fund of $2bn in the fourth quarter and $5bn for the year. The provision for future claims under the GoM compensation scheme was increased by $4.7bn in the fourth quarter. Earnings per ordinary share in the fourth quarter rose to 24.55 cents from 18.38 cents the year before. The 2010 reported reserves replacement ratio, excluding acquisitions and disposals, was 106%, representing the 18th year in succession that the ratio has exceeded 100%. Production for the quarter was 3,673m barrels of oil equivalent per day (boepd), 9% lower than the fourth quarter of 2009, reflecting higher turnaround activity, the continued impact on Gulf of Mexico production as a result of the drilling moratorium and the absence of the 40m boepd benefit in the fourth quarter of 2009 related to the make-up of a prior-period under-lift. Production for the full year was 3,822m boepd, 4% lower than the same period of 2009. After adjusting for entitlement impacts in production sharing agreemments and the effects of acquisitions and divestments, production was 2% lower year on year, largely due to the impacts on Gulf of Mexico production. Net debt at the end of the quarter was $25.9bn, compared to $26.2bn a year earlier. The ratio of net debt to net debt plus equity was 21% compared to 20% a year earlier. The group intends to reduce the net debt ratio to within the range of 10% - 20%. Organic capital expenditure in the fourth quarter and full year was $5.2bn and $18.2bn respectively. Organic capital expenditure for 2011 is expected to be around $20bn. Disposal proceeds were $7.4 billion for the quarter, including $4.9 billion for deposits received relating to transactions expected to complete in subsequent periods. BP plans to deliver around $13bn of further disposal proceeds in 2011. The company said it intends to seek buyers for the Texas City, refinery in Texas and the Carson refinery near Los Angeles, California, together with its associated integrated marketing business in southern California, Arizona, and Nevada. Subject to regulatory and other approvals, BP plans to complete the sales by the end of 2012, thereby halving BP's US refining capacity.Texas City was the scene of a large explosion in 2005 that resulted in the deaths of 15 workers and more than 170 injuries. BP was hit with a record fine after the incident and taken to court by victims' families.That disaster was superseded by the Gulf of Mexico oil spill last year which began with an explosion that resulted in the deaths of 11 workers and caused huge environmental damage off the coast of southeast USA.Elsewhere in the US, BP has had problems at Prudhoe Bay in Alaska, where a large oil spill in 2006 resulted in a hefty fine for the oil company.BP also learned today that its plans for an $8bn Arctic exploration deal with Kremlin-backed Rosneft have stalled after the High Court granted an injunction to freeze the deal following a request from BP's Russian partners.A London court heard an action launched by Alfa-Access-Renova (AAR), the vehicle owned by a number of Russian oligarchs and which has a 50% stake in TNK-BP.