Daily Management Review

Oil Market Pressure Results in Biggest Ever Annual Loss Reported by BP


Oil Market Pressure Results in Biggest Ever Annual Loss Reported by BP
Exhibiting that even one of the nimblest oil producers is struggling in the worst market downturn in over a decade, BP slumped to its biggest annual loss last year and announced thousands more job cuts on Tuesday.
It would cut 7,000 jobs by the end of 2017, or nearly 9 percent of its workforce, the British oil and gas company, which is still grappling with about $55 billion of costs from the oil spill in the Gulf of Mexico in 2010, said.
The fourth-quarter underlying replacement cost profit for BP, the company’s term for net income, came in at $196 million as the company announced a loss of $6.5 billion in 2015. The company had been expected by analysts to make a net income of $730 million.
Becoming the worst performer on the pan-European FTSEurofirst 300 index  and on track for their biggest one-day fall since June 2010, BP shares fell as much as 8.5 percent and were 8.1 percent lower at 6.36 a.m ET.
The impact of the lowest oil prices since 2003 were unable to be buffered by the "shrink to grow" strategy adopted after the Macondo rig explosion in 2010, hailed as the best preparation for a weak oil market as is evident from the company's 2015 loss.
"Should low oil prices prevail, they're a quarter or two away from having to cut the dividend, or divest some more assets," said Jack Allardyce, analyst at Cenkos Securities.
BP's weak results and outlook are likely to put pressure on a company that has had to increase borrowing even as dividends are considered sacrosanct among most major oil companies. BP maintained its 2015 dividend at 10 cents per share.
Following a 70 percent slide in oil prices since the middle of 2014 that has forced oil companies to cut tens of thousands of jobs and slash spending and BP's results are the latest to show the extent large oil companies are struggling.
The loss for BP in 2015 was more than the $4.9 billion losses the company had incurred in 2010 spurred due to a $17.2 billion hit in the second quarter of that year after the explosion in the Gulf of Mexico.
There was no comment from BP when asked if the company's 2015 loss was the biggest on record.
Other players in the industry are also struggling.
The first quarterly loss was reported by Chevron, the second biggest U.S. producer behind Exxon Mobil last week in more than 13 years. Royal Dutch Shell is expected to report a near halving of profits.
A day ago, Standard and Poor's placed BP on the path toward a credit downgrade and lowered Shell's rating.
Due to low oil prices, including on fields in the Gulf of Mexico, the U.S. Utica shale acreage in Ohio and Libya, BP took a bigger-than-expected hit at its upstream oil and gas production business and booked charges of $2.6 billion in the fourth quarter.
Warmer than expected weather in 2015 probably meant that BP took a hit from some of its oil and gas hedging positions said analysts at Bernstein.
In the fourth quarter of 2015, Benchmark Brent oil prices averaged $43 a barrel down from $76 a year earlier. With Brent averaging about $33 per barrel in 2016 so far, the poor market backdrop is set to persist.
The company said it would be able to reduce its costs further to allow its balance sheet to break even below $60 a barrel is the the current downturn persists for longer than anticipated.
"Should current conditions persist for longer than anticipated, we expect that all the actions we are taking will capture more deflation," Chief Financial Officer Brian Gilvary said in a statement.

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