BP Plc reported a 91 percent decline in fourth-quarter earnings after average crude oil prices dropped to the lowest in more than a decade. Its shares fell the most since 2010.
Profit adjusted for one-time items and inventory changes totaled $196 million, the London-based company said Tuesday. That missed the $814.7 million average estimate of 10 analysts surveyed by Bloomberg. The net loss for the year was $6.5 billion, the biggest in at least 30 years.
While Chief Executive Officer Bob Dudley has trimmed billions of dollars of spending, cut thousands of jobs and deferred projects in response to the plunge in crude prices, BP’s cash flow still doesn’t cover investments and dividends. The CEO said in an interview that he’s re-tooling BP to balance cash flows at less than $60 a barrel. The slump has driven the company’s market value below $100 billion for the first time since the Gulf of Mexico oil spill in 2010.
“It’s very disappointing,” Ahmed Ben Salem, an oil and gas analyst at Oddo & Cie in Paris, said by phone. “The dividend payout is probably safe for this year but if oil stays around $30 then they would have to cut capex further.”
BP has already cut “a lot” from capital expenditure, Chief Financial Officer Brian Gilvary said Tuesday at a press briefing in London. When asked how much room it has to reduce spending further before cutting into the bone, Gilvary said “we are around that zone.”
Profit has been lower year-on-year for six consecutive quarters as oil prices tumbled. The average price of Brent crude slumped 42 percent in the fourth quarter from a year earlier to $44.69 a barrel, the lowest since 2004. The benchmark contract is now around $33.
BP shares slumped as much as 9.3 percent, the most since June 2010, and traded down 9 percent at 334.1 pence as of 12:59 p.m. in London, giving it a market value of about $88 billion. The stock has declined 5.6 percent this year following last year’s 14 percent retreat.
PetroChina Co. said last week it expects 2015 profit to fall at least 60 percent. Chevron Corp. on Friday reported its first quarterly loss since 2002, while Royal Dutch Shell Plc said last month that fourth-quarter profit is likely to drop at least 42 percent. The European oil major is scheduled to report full earnings on Thursday.
BP started cutting costs and selling assets following the 2010 oil spill. In October, it lowered its 2015 capital-spending forecast to about $19 billion after investing about $23 billion in 2014. The company said then it expects to spend $17 billion to $19 billion a year through 2017.
BP could reduce that further to $14 billion if oil averages about $40 a barrel, which would balance the books by 2018 while still allowing it to maintain dividends, Barclays Plc analyst Lydia Rainforth said.
“We’re really going to fast, re-basing both the upstream and downstream,” Dudley said in an interview with Bloomberg Television. “We want to get the books so they can balance at $60 next year. We know now it’s going to balance below that.”
BP, which said previously it plans to reduce its oil and gas exploration and production workforce by 4,000 people this year, will also cut 3,000 jobs in downstream businesses by 2017, according to a company statement.
The adjusted loss from the upstream division, which includes oil and gas exploration and production, was $728 million in the quarter, compared with a profit of $2.2 billion a year earlier. Earnings from downstream, made up of refining, chemicals and trading, were $1.2 billion, similar to a year earlier and 48 percent lower than the preceding quarter.
BP had a “small loss” on oil trading in the period, Gilvary said, characterizing the quarter as “weak.”
BP expects refining margins in the first quarter of 2016 to be lower than the previous three months. Refining countered declining profit from oil and gas sales for much of 2015 as demand stayed high. A mild winter has curbed consumption of some fuels including heating oil, narrowing margins.
“Downstream operations become less of a safety net for weak upstream results” for BP and its peers in early 2016, William Hares, a London-based analyst with Bloomberg Intelligence, wrote in a report.
BP’s deductions for one-time costs, accounting effects and changes in the value of inventories pulled down the bottom line to a full-year net loss that was almost double the $3.72 billion loss in 2010. That year, BP took charges of more than $40 billion to cover the legal, operational and environmental costs of the Gulf of Mexico oil spill.
BP maintained its quarterly dividend at 10 cents a share and said there are no plans to cut the payout.