BP has signalled belief in the exploration potential of the North Sea after returning to profit in the third quarter although it highlighted uncertainty about how long the coronavirus crisis will weigh on the economy.
The oil and gas giant made $86 million (£66m) underlying profit in the third quarter on the measure tracked by analysts after losing $6.7 billion in the preceding three months.
BP slashed the valuation of oil and gas assets in the second quarter to reflect the plunge in oil and gas prices triggered by the Covid-19 coronavirus and resulting lockdowns.
Prices recovered some ground in the latest quarter as lockdowns were eased but remained well below the levels recorded in January.
“It is difficult to predict when current supply and demand imbalances will be resolved and what the ultimate impact of Covid-19 will be,” said BP yesterday.
The company plans to shed 10,000 jobs to help it cope with tough conditions.
After new chief executive Bernard Looney announced plans to increase investment in renewables to help turn BP into a net zero business, the weakness in oil and gas markets has raised questions about the future of its North Sea business.
BP cut the valuation of its North Sea assets by around £350 million in the first quarter. It retrenched in the area amid the deep downturn that lasted from 2014 to 2018.
The company suffered a setback recently after an attempt to sell mature North Sea assets to Premier Oil fell apart.
However, BP said yesterday that key events of the third quarter included its success in the latest North Sea exploration licensing round. The company was awarded 11 blocks.
READ MORE: Surrender of North Sea stalwart highlights scale of upheaval in area
Under the heading of strategic progress, BP noted it recently announced an agreement to partner with Aberdeen City Council to help it achieve the goals of its Net Zero Vision to reduce emissions.
Protesters from Extinction Rebellion have dismissed the agreement as greenwash. They claimed that as a company that profited from oil and gas production BP could not be trusted to advise Aberdeen council on emissions reduction.
Mr Looney defended BP’s approach yesterday.
He said: “Having set out our new strategy in detail, our priority is execution and, despite a challenging environment, we are doing just that – performing while transforming.”
BP noted that it had formed a partnership with Equinor to develop offshore wind projects in the USA.
The company has invested in the roll out of charging points for electric vehicles in Germany.
It was recently awarded a contract by Police Scotland, to deliver more than 1,000 charging points over the next four years.
Mr Looney has said BP can use the profits generated from oil and gas production to help fund investment in areas such as renewable energy while supporting payouts to investors.
READ MORE: Oil giants show faith in potential of UK carbon capture projects
In August BP halved its dividend for the second quarter, to 5.25 cents per share, in a move which formed part of directors’ plan to reset the company for the future in the face of difficult conditions.
The cut was the first made by BP since 2010, when the disastrous Gulf of Mexico oil spill left it facing multi-billion dollar costs.
BP announced a third quarter dividend of 5.25 cents per share. That compared with 10.25 cents per share for the third quarter of 2019.
While oil and gas will become a less important part of BP’s business the company is likely to continue investing in what it regards as core areas.
Mr Looney highlighted the amount of cash the company could generate from favoured North Sea assets while he was running its exploration and production business.
BP has invested heavily in big fields West of Shetland in recent years and made finds in the area.
In a recent article in The Herald the company’s new North Sea chief, Emeka Emembolu, wrote: “We aim to increase our investment in renewable energy 10-fold by 2030, while reducing our global hydrocarbon production by 40% in the same decade.
READ MORE: BP's North Sea chief says area will play big part in new era for energy giant
“We will do this by focusing on core oil and gas regions like the North Sea, to deliver the resources still needed in the energy mix, but we will not explore for more oil and gas in new countries.”
In January BP agreed to sell stakes in the Andrew and Shearwater fields to Premier Oil for $625m before agreeing to cut the price of the deal. Premier shelved the deal earlier this month after it agreed to merge with Chrysaor.
Mark Nelson, analyst at investment firm Killik & Co, said BP had made progress in the third quarter on both the financial and strategic front.
He added: “We continue to believe that it remains amongst the best placed businesses within the sector to navigate the current challenging market conditions and to reposition itself in order to participate in, rather than be left behind by, the energy transition.”
However, BP shares closed down 4.26p at 195.74p. They sold for 365.75p in June.
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