Due to declining refining margins and output, BP plc (NYSE:BP) (LON:BP), Europe’s second largest oil company, has announced that fourth-quarter profits are down from a year earlier. The announcement, however, wasn’t a shock to analysts as profits came in at the average of 12 analysts surveyed by Bloomberg.
Industry trend
By market value only, Royal Dutch Shell plc (NYSE:RDS.A) (NYSE:RDS.B) and Exxon Mobil Corporation (NYSE:XOM) are larger than BP plc (NYSE:BP) (LON:BP) and the company joins the two of them with lower earnings than the year prior. Each of the big three have been struggling in higher costs for drilling, a shrinkage in refining profits and stagnant prices for oil.
In an interview with Bloomberg Television, Peter Hutton, an analyst at RBC Capital Markets explained the similarities between the three. “Everyone in the industry is facing similar issues,” he said. “Investors are looking for capital efficiency, and BP is in a reasonably good position. But one thing we’re still looking for is a return of operating momentum.”
Adjusting for disposals, underlying output rose 3.7 percent for BP this year after completing the sale of its stake in TNK-BP as well as the expiration of its concession in Abu Dhabi.
Chief Executive Officer Bob Dudley has repeatedly promised to concentrate his efforts on BP plc (NYSE:BP) (LON:BP)’s more profitable operations. Earlier today in an interview with Bloomberg, he said, “You have to select your projects very carefully and execute them really well, and pace them out so there’s cash in excess so there’s distributions to shareholders. There’s still a lot of growth out there for us.”
For the fourth quarter, Brent Crude prices were down 0.7 percent from the year prior at $109.35 a barrel. The company also saw its refining marker margin, an industry wide measure of refining oil, fall from $18.17 in the third quarter to $11 a barrel for the fourth quarter.
Since reporting its third quarter numbers in late October, shares of BP are up 4.8%. Much of this success comes on the heels of finishing a $38 billion asset-sale earlier than expected. The asset sale was deemed necessary following the 2010 oil spill in the Gulf of Mexico. BP is expected to sell another $10 billion in assets over the next two years with the bulk of the sales expected to fund buybacks of its stock.
2010 Gulf of Mexico spill
BP plc (NYSE:BP) (LON:BP) is presently waiting the judgement for its role in the 2010 spill under the U.S. Clean Water Act. Due to higher than expected legal fees and the cost of environmental restoration, BP recently raised its provision for the spill by $200 million to $42.7 billion.
Additionally, on January 11th, BP plc (NYSE:BP) (LON:BP)’s claims that it is is a victim of “fictitious” claims that had nothing to do with spill was rubbished by an appeals court upholding the $9.2 billion partial settlement the company was ordered to pay out to victims.
