Danica Kirka

BP beats expectations on downstream results

LONDON (AP) — Cost-cutting and a solid performance from the refining and marketing arm helped British energy producer BP cushion the hit from low oil prices in the first quarter. Though the company reported a 79 percent slide in earnings, its share price spiked 4.5 percent higher Tuesday to 377 pence ($33.43 on the New York Stock Exchange) as the result was better than anticipated in markets. BP reported that its underlying replacement cost profit — the oil industry standard, which excludes non-operational items and the value of oil inventories — dropped to $532 million from $2.58 billion in the first quarter of 2015. Though that's quite a precipitous decline, the result was about $100 million better than analysts had forecast. BP also said it would maintain its dividend at 10 cents a share — a key factor as the stock is held by many pension funds. "We think the key takeaway is the strong message on dividend sustainability today," brokerage firm Bernstein said in a statement. "BP is clearly delivering on its cost reduction plans which are offsetting commodity price weakness and delivering earnings and cash flow ahead of expectations." Oil companies rushed to cut costs and curtail investment as oil prices tanked over the past year-and-a-half, striking 12-year lows in January. Though prices have recovered somewhat since, they remain well below the $100 a barrel posted as recently as September 2014. Brent crude, the benchmark for international oil, traded at $44.82 a barrel on Tuesday, up from the $34 a barrel average in the first quarter but down from $54 in the first quarter of 2015. In recent years, much of the profitability of major oil producers like BP has come from high oil prices. Because of the lower oil price environment, they have sought to keep a lid on costs. BP said Tuesday it had reduced cash costs by $4.6 billion over 2014 levels and cut organic capital expenditure to $3.9 billion in the first quarter from $4.4 billion a year earlier. "Despite the challenging environment, we are driving towards our near-term goal of rebalancing BP's cash flows," Chief Executive Bob Dudley said. "Operational performance is strong and our work to reset costs has considerable momentum and is delivering results." The company's earnings were driven by the so-called downstream business, primarily refining and marketing, which reported an underlying replacement cost profit of $1.8 billion, compared with $2.2 billion a year earlier. The upstream business, including exploration and production, posted a loss of $747 million after a profit of $604 million in the first quarter of 2015. In a milestone for the company, BP said the bulk of the costs from the 2010 Deepwater Horizon accident are now known after a U.S. District Court in April approved a settlement with the U.S. government and Gulf states. BP set aside an additional $917 million in the first quarter to cover costs related to the accident, bringing the total pre-tax charge to $56.4 billion.  

Oil price drop pushes Shell 2015 profit down 44 percent

LONDON (AP) — Royal Dutch Shell said fourth-quarter earnings tumbled 44 percent as the collapse in oil prices took its toll on another global energy giant. Profit adjusted for changes in the value of inventories and one-time items dropped to $1.83 billion from $3.26 billion in the same period a year earlier, the Anglo-Dutch company said Feb. 4. The results came days after Shell sealed a $52.4 billion takeover of BG Group Plc, which will increase the company’s proven reserves of oil and natural gas by 25 percent. While critics questioned the deal because of the plummeting price of oil, CEO Ben van Beurden promised it would rejuvenate Shell. The BG deal comes as Shell and other oil companies are slashing jobs and postponing investments to adjust the bottom line to the dramatically lower oil prices. Jobs will also be eliminated in the Shell-BG deal and other efforts to boost competitive performance. In a statement released last month just before shareholders voted on the BG merger, Shell said that streamlining and integration from the deal and other cost cutting would include the loss of 10,000 staff and contractor positions across both companies in 2015-2016. “In 2015, we significantly curtailed spending by reducing the number of new investment decisions and designing lower-cost development solutions,” van Beurden said. “Shell will take further impactful decisions to manage through the oil price downturn, should conditions warrant that.” Oil prices have been falling for over a year. Brent crude, the benchmark for international oil, hit a 12-year low of $27.10 a barrel in January, having been above $100 a barrel in September 2014. It traded at $30.32 on Feb. 9. Shell cut capital investment by $8.4 billion to $28.9 billion and slashed operating costs by $4.1 billion to $41.1 billion for 2015. The company expects another $3 billion in cuts this year. Net income improved 58 percent to $939 million. Van Beurden told reporters in a webcast that he expected prices would rebound later in the year or in the early part of next year. The fundamentals point to a higher price, he said. “Can oil prices go lower? I’m sure they can. Will they go lower? I don’t know,” he said. “If you look at ... the slightly longer run, you are not going to see structurally lower oil prices in the $30s.” The report comes amid sweeping changes for the company. Shell has exited from exploring in Alaska for the foreseeable future and cancelled the Carmon Creek heavy oil project. Oil supplies are high even though consumption growth has tailed off, particularly in China. OPEC members, meanwhile, haven’t wanted to cut production — even at a time Iran wants to turn on the taps after decades of sanctions. Campaign groups like Greenpeace suggest it’s time the oil companies focused on other forms of energy, citing more electric cars, solar panels, and better-insulated homes. “Shell and BP have bet heavily on the wrong energy sources, and now they’re losing big,” Greenpeace UK’s senior climate adviser Charlie Kronick said. “The problem is that with thousands of jobs, billions in investments and people’s pensions tied up with their companies’ fortunes, Big Oil’s bosses won’t be the only ones to pay for their shortsightedness.”

BP reports 91 percent fall in fourth quarter earnings

LONDON (AP) — BP’s fourth-quarter earnings plunged 91 percent amid sharp declines in oil prices as the British energy company continued to make provision for the Deepwater Horizon disaster in the Gulf of Mexico and streamline operations. The company reported Feb. 2 that underlying replacement cost profit fell to $196 million from $2.2 billion in the same quarter a year earlier. The figure is an oil industry accounting standard that includes fluctuations in the price of oil and excludes one-time items. “It’s going to be a very turbulent year for our industry,” CEO Bob Dudley said as he opened a news conference in London. Oil companies are slashing jobs and delaying investments as crude prices plummet. Brent crude, the benchmark for international oil, fell 34 percent last year and hit a 12-year low of $27.10 a barrel in January. It traded at $34.13 on Feb. 1, having been above $100 a barrel as recently as September 2014. The company also set aside an additional $443 million in the quarter to cover costs related to the Deepwater Horizon oil spill in the Gulf of Mexico in 2010. Charges for the spill now total $55.5 billion. BP stock fell sharply on the news by early afternoon, dropping nearly 9 percent to $29.01. Yet Dudley took the numbers in stride, arguing that the markets had failed to take into account a robust $5.8 billion operating cash flow for the quarter. The overall net loss narrowed to $3.3 billion from $4.4 billion a year earlier. The company also said it was taking steps to streamline redundant systems put in place for legal reasons after the spill. “We have our confidence back now,” he said. The company said it reduced controllable cash costs by $3.4 billion last year, and estimated future cuts at almost $3.6 billion. It forecast asset sales of as much as $5 billion this year. BP also announced 3,000 job cuts globally by the end of 2017. That is in addition to 4,000 cuts planned in exploration and production — including some 600 in North Sea operations. BP’s job cuts will amount to 13 percent of its Alaskan workforce, or about 270 positions. European rival Royal Dutch Shell, which reports earnings later this week, said in January that its planned merger with British gas producer BG Group would result in some 10,000 staff and contractor job losses across both companies. Oil prices have plunged because global supply is high at a time when consumption is growing more slowly than expected, particularly in China. OPEC members, meanwhile, are refusing to cut production for fear of losing market share to non-members like the U.S. and Russia. And Iran is looking to start pumping more after decades of sanctions. BP is supported somewhat during the current price slump by higher margins at its downstream business, which includes refining and selling fuels. But that’s not enough to offset the broader impact of the market drop, said Spencer Welch, an oil expert at IHS. “Without the ongoing costs of Macondo/Gulf of Mexico, then BP would still have made a reasonable profit in 2015, mostly from the Downstream business,” Welch said in an email. Dudley said he expected a tough 2016, particularly in the first half. There are few predictions that oil prices will bounce back quickly, with some analysts forecasting they will drop to near $10 a barrel. And that means lots of uncertainty. “I expect continued layoffs, restructurings, and consolidated among oil and gas companies,” said Gianna Bern, associate teaching professor of finance at the University of Notre Dame. “We are witnessing the perfect storm in this industry.”

BP reports 91 percent fall in fourth quarter earnings

LONDON (AP) — BP's fourth-quarter earnings plunged 91 percent amid sharp declines in oil prices as the British energy company continued to make provision for the Deepwater Horizon disaster in the Gulf of Mexico and streamline operations. The company reported Tuesday that underlying replacement cost profit fell to $196 million from $2.2 billion in the same quarter a year earlier. The figure is an oil industry accounting standard that includes fluctuations in the price of oil and excludes one-time items. "It's going to be a very turbulent year for our industry," CEO Bob Dudley said as he opened a news conference in London. Oil companies are slashing jobs and delaying investments as crude prices plummet. Brent crude, the benchmark for international oil, fell 34 percent last year and hit a 12-year low of $27.10 a barrel in January. It traded at $34.13 on Monday, having been above $100 a barrel as recently as September 2014. The company also set aside an additional $443 million in the quarter to cover costs related to the Deepwater Horizon oil spill in the Gulf of Mexico in 2010. Charges for the spill now total $55.5 billion. BP stock fell sharply on the news by early afternoon, dropping nearly 9 percent to $29.01. Yet Dudley took the numbers in stride, arguing that the markets had failed to take into account a robust $5.8 billion operating cash flow for the quarter. The overall net loss narrowed to $3.3 billion from $4.4 billion a year earlier. The company also said it was taking steps to streamline redundant systems put in place for legal reasons after the spill. "We have our confidence back now," he said. The company said it reduced controllable cash costs by $3.4 billion last year, and estimated future cuts at almost $3.6 billion. It forecast asset sales of as much as $5 billion this year. BP also announced 3,000 job cuts globally by the end of 2017. That is in addition to 4,000 cuts planned in exploration and production — including some 600 in North Sea operations. European rival Royal Dutch Shell, which reports earnings later this week, said in January that its planned merger with British gas producer BG Group would result in some 10,000 staff and contractor job losses across both companies. Oil prices have plunged because global supply is high at a time when consumption is growing more slowly than expected, particularly in China. OPEC members, meanwhile, are refusing to cut production for fear of losing market share to non-members like the U.S. and Russia. And Iran is looking to start pumping more after decades of sanctions. BP is supported somewhat during the current price slump by higher margins at its downstream business, which includes refining and selling fuels. But that's not enough to offset the broader impact of the market drop, said Spencer Welch, an oil expert at IHS. "Without the ongoing costs of Macondo/Gulf of Mexico, then BP would still have made a reasonable profit in 2015, mostly from the Downstream business," Welch said in an email. Dudley said he expected a tough 2016, particularly in the first half. There are few predictions that oil prices will bounce back quickly, with some analysts forecasting they will drop to near $10 a barrel. And that means lots of uncertainty. "I expect continued layoffs, restructurings, and consolidated among oil and gas companies," said Gianna Bern, associate teaching professor of finance at the University of Notre Dame. "We are witnessing the perfect storm in this industry."  

Mining sector in turmoil as Anglo American sheds jobs

LONDON (AP) — The decision by a London-based mining company to shed 85,000 jobs is the sign of a global industry in crisis, with conglomerates reassessing their huge operations to cope with a drop in demand from Chinese factories for metals and other raw materials. Anglo American said Dec. 8 it will shed some 63 percent of its workforce in a radical restructuring meant to cope with tumbling commodity prices. It will streamline its global business from some 55 mines to around 20. CEO Mark Cutifani said the drop in commodity prices requires “bolder action,” even though the company has delivered on performance and previous business restructuring objectives. He pledged to provide more details later. The dividend was suspended for the second half of 2015 and 2016. Investors reacted with dismay. The company’s share price fell 11 percent to 327.30 pence. Mining companies around the world are facing tough times as economic growth slows in China, whose manufacturers’ need for raw materials has driven a years-long boom in mining in countries like Australia and Brazil. China accounts for as much as 40 percent to 50 percent of global commodity demand, according to consultants PwC. Its economic growth is forecast to drop below 7 percent a year from double digits in recent years — and commodity prices are tracking it lower. “Mining companies are feeling the wrath of the collapse in commodity prices,” said Gianna Bern, who teaches finance at the University of Notre Dame in Indiana and expects others across the industry to also either cut or suspend their dividends to cope. “Companies are weathering some very tough economic times.” The price of copper has dropped about 30 percent in the past year; gold 11 percent; iron ore has about halved. Companies have focused on cutting costs and reducing capital spending, but market values have continued to decline among the top 40 companies — losing some $156 billion, or 16 percent, of their combined market value in 2014, PwC said. “With few exceptions, the commodity price outlook remains dim, forcing miners to keep up their guard,” PwC said in its report. “As the old saying goes, survival will be of the fittest, and for miners also the leanest.” Just as first there was a big boom in commodities, now there’s an equally big bust, said Julian Jessop, the chief global economist at Capital Economics. “I think the pendulum has swung too far to pessimism but as long as you have pessimism, you’re going to get these big cuts.” Anglo American is not alone. Shares in Glencore slid about 30 percent in one day in September amid concerns over its ability to service sky-high debts at a time of low market prices. Glencore shares have since stabilized as the company announced the sale of several mines, but they were down another 9 percent on Tuesday. Rival BHP Billiton fell 6 percent and Antofagasta 5 percent. But Anglo American is different from others in that two commodities in its portfolio — diamonds and platinum — are labor intensive to extract, said Kieron Hodgson, a mining analyst at Panmure Gordon & Co. The company said it provides some 40 percent of the world’s newly mined platinum from South Africa and Zimbabwe. De Beers and its partners produce a third of the world’s diamonds by value, employing more than 20,000 people around the world. As Anglo American moves to rationalize its business, it will reduce its assets by 60 percent. It will consolidate from six to three businesses. The company will also move its London office to “co-locate” with DeBeers, its majority-owned diamonds business by 2017. Some $3.7 billion of cost and productivity improvements are underway and set to be completed by 2017. Cutifani also confirmed Anglo will sell the phosphates and niobium businesses during 2016. “We will set out the detail of the future portfolio in February, with the aim of delivering a resilient Anglo American and a step change in the transformation of the company,” he said. Some analysts wonder if it will be enough. “It’s underwhelming as a package,” Hodgson said. “The business needs to reappraise itself in a manner that gives it a future.” Hodgson said that if commodity prices recover, Anglo is likely to achieve its targets. But if commodity prices drop again, the company risks having to raise cash from investors through a share issue, he said.
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