BP has revealed it has increased the valuation of its North Sea portfolio weeks after announcing plans to cut 600 jobs in the UK in response to the crude price slump.
The oil and gas giant revealed it plunged $5.2 billion (£3.6bn) into the red last year, after making $8bn profit in 2014, sending its shares plunging.
The oil price fall took a heavy toll on BP’s upstream exploration and production arm, which has a big business in the UK North Sea run out of Aberdeen.
The downstream refining and marketing operation fared much better but BP said it expects to cut 3,000 jobs from the division as bosses get the company in shape for a long downturn.
With the downstream business concentrated overseas, the latest cuts will likely have limited impact on the UK.
However, the comments in the results announcement on the North Sea will lead to renewed scrutiny of the company’s actions in the area. They underline the fact big firms that own oil and gas fields are benefiting from a sharp drop in the cost of work such as drilling. Contractors are fighting for a share of a shrinking market.
BP said it had cut the book valuation of some North Sea fields last year to reflect factors such as the crude price fall.
These were more than offset by increases in the valuations of some fields which it had downgraded in the past.
The company said: “Impairment losses … included charges in relation to assets in the North Sea but these were more than offset by impairment reversals in relation to other assets in the region.”
BP gave no details but said the increases take accounts of factors such as decreases in cost estimates.
Based on current trends, the company now expects the future costs of decommissioning some fields will be much lower than previously thought.
The new head of BP’s North Sea business Mark Thomas said recently the firm sees a long-term future for it in the area, where it is investing heavily in developing big new fields West of Shetland.
The company said the highlights of the fourth quarter included the start of sea trials for the production vessel that will be used on the revamped Schiehallion field off Shetland.
But BP noted the upstream business felt the impact of “steeply lower oil and gas prices” in the fourth quarter.
It has announced plans to cut 4,000 upstream jobs globally this year.
The division made an underlying loss of $728m in the three months to 31 December, compared with $2.2bn profit in the same period in the preceding year.
BP got an average $37.05 per barrel for oil in the final quarter compared with $69.03 last time.
With Brent crude trading at less than $35/bbl in recent weeks, trading conditions have been even more challenging in the current quarter.
Brent crude fetched $115/bbl in June 2014.
BP’s chief executive, Bob Dudley, said the company will look to squeeze more costs out of the business while keeping a tight rein on spending on new projects.
“We are continuing to move rapidly to adapt and rebalance BP for the changing environment. We’re making good progress in managing and lowering our costs and capital spending,” he said.
BP expects capital spending to be around $17bn in 2016, compared with $18.7bn in 2015.
On an underlying basis BP made a $196m fourth quarter profit compared to analysts’ expectations of around $730m, and a $2.2bn gain in the fourth quarter of 2014.
The company took a $443m charge related to the 2010 Gulf of Mexico oil spill in the fourth quarter, primarily reflecting additional business economic loss claims. This took the cumulative pre-tax charge for the incident to $55.5bn.
However the company will maintain the fourth quarter dividend at 10 cents per share.
Michael Hewson, analyst at the CMC Markets spread betting firm asked: “How many more jobs will BP need to cut from its already reduced 80,000 workforce in the coming months in order to sustain its payout against a backdrop of a possible ratings downgrade, and lower energy prices for longer.”
Shares in BP closed down nine per cent, 31.85p at 335.10p.
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