Low oil prices weigh on BP earnings

Profits at oil major BP have nearly halved as the industry continues to grapple with low oil prices.

BP-operated Sullom Voe oil terminal in Shetland. Picture: Contributed

Reporting its third-quarter results, the group warned that oil refining margins would remain under pressure in the final three months of the year.

BP has been slashing costs in the face of weak global oil prices and sliding margins, with the cost of crude at around $46 a barrel in the third quarter compared with $50 a year earlier.

It posted underlying replacement cost profits – an industry benchmark measure – of $933 million (£763m) for the three months to the end of September against $1.82 billion the year before.

Rival Royal Dutch Shell also warned over oil prices, although its underlying profits rose by about a fifth from last year.

BP’s chief financial officer, Brian Gilvary, told investors: “We continue to make good progress in adapting to the challenging price and margin environment.”

Hargreaves Lansdown analyst George Salmon noted: “With Brent crude hovering around the $50 mark, the bottom end of BP’s stated breakeven level, investors will be keeping a close eye on where the oil price goes from here.

“Should it break through and stabilise, there will be a collective sigh of relief from shareholders. After a Herculean effort on cost-cutting and disposals, it would go a long way to easing concerns about the dividends long-term viability.”

The quarterly dividend was unchanged at 10 cents per share. On a statutory basis, replacement cost profits rose 35 per cent to $1.66bn as the group ramped up cost-cutting.

BP said it now sees annual costs coming in even lower than previously expected, at around $16bn, down from the range of $17-19bn previously pencilled in.

Underlying earnings for the first nine months of the year more than halved to $2.2bn as its bill for the Deepwater Horizon oil disaster surged to $61.8bn.

The firm said on reporting its second-quarter results earlier this year that it hoped to draw a line under the payouts for the Gulf of Mexico spill in 2010, with settlements now coming to a close.

Meanwhile, Royal Dutch Shell swung into the black in the third quarter as a cost-cutting and divestment programme began to bear fruit.

The oil giant said profits came in at $1.4bn compared with a $6.1bn loss in the same period last year as the group also reaped the benefits of its acquisition of BG Group.

Adjusted profit, which strips out exceptional items, lifted from $2.4bn to a better-than-expected $2.8bn in the period.

Chief executive Ben van Beurden cautioned that the outlook for the industry remains challenging.

“Shell delivered better results this quarter, reflecting strong operational and cost performance. But lower oil prices continue to be a significant challenge across the business, and the outlook remains uncertain,” he said.

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