BP to cut spending after unveiling slump in profits

BP saw its third-quarter profits slump 40%. Picture: Andy Buchanan/PA Wire

The energy major said yesterday that capital spending for this year would now be about $19bn compared with a previous company estimate of $20bn and an original 2015 capex target of $24bn–$26bn.

BP’s aggressive cost-cutting has resulted in thousands of job losses and the scrapping of many new projects. The business has already sold nearly $50bn of assets since the 2010 Gulf of Mexico disaster that killed 11, and said it now expected an additional $3bn-$5bn of divestments in 2016.

The disaster involved millions of barrels of crude being spilled to create major environmental damage, and the group admitted yesterday the bill could rise further. It came as BP announced that its underlying replacement cost profit was $1.82 bn (£1.18bn) for its third trading quarter to end-September, down 40 per cent from $3.04bn in the same period last year.

This profit measure strips out volatile gains and losses due to changes in the value of oil stocks held by energy companies. The results were also affected by a $756 million charge for non-operating items.

BP said the earnings decline was due to oil and gas prices more than halving to $50 from about $100 a year ago. However, there was better news for shareholders as the group held its Q3 dividend at 10 cents.

Richard Hunter, head of equities at broker Hargreaves Lansdown, said: “BP’s longer-term outlook remains positive despite the interim hurdles and investors are certainly being paid to wait – the current dividend yield of 6.2 per cent is extremely punchy given the current interest rate environment.”

BP boss Bob Dudley said the business was “ready now to enter a new era”, able to plan for the future after five years of resolving all claims from the Gulf of Mexico spill.

“Now, finally, BP can be more of a normal oil company and do what oil and gas companies do, and I’m very excited about that,” Dudley said.

He added that the group would now focus on growing output, which is expected to rise by 800,000 barrels per day (bpd) by 2020 from projects ranging from Azerbaijan and Egypt to the North Sea and the Gulf of Mexico.

Despite the steep fall in oil prices, BP increased oil and gas production 4.4 per cent in the third quarter from a year earlier, producing 2.242 million barrels of oil equivalent per day.

It said that production was set to be slightly up in Q4 due to planned seasonal turnaround activity.

Analysts also noted a standout performance in Q3 from the “downstream” operations – refining, minerals and marketing – where profits jumped to $2.3bn from $1.5bn a year ago.

BP expects to balance its cashflow by 2017 based on an oil price of $60.