BP Profit Impacted by Angola Write-Off
Write-offs pushed BP’s net 2Q 2017 profit to a tenth of what it made in this year’s first quarter, but the UK major pointed to strong upstream growth, with gas projects in Australia, Trinidad and Oman coming onstream shortly, and Shah Deniz 2 in Azerbaijan likely to start producing gas in 15 months time. The supermajor also said US sanctions on Russia would not affect its business.
BP posted August 1 a $144mn second quarter net profit, representing a marked improvement from its $1.42bn loss in 2Q 2016, but a fraction of its $1.45bn first quarter 2017 profit.
BP had already said June 29 it would include a substantial non-cash exploration write-off in Angola in 2Q results that would not attract tax relief, as it relinquished certain licence stakes with oil and gas discoveries there.
On August 1, it confirmed this 2Q exploration charge as $753mn, mostly on Angola. It also incurred a $350mn non-operating charge relating to US Gulf of Mexico claims, plus a write-off on the changed mix of profits after renewal of its Abu Dhabi onshore oil concession.
Dudley said the quarter had been one of “solid operational delivery in all our businesses”, but the environment remained “challenging” with oil prices lower than 1Q 2017.
Underlying replacement cost (RC) profit net of tax was $684mn, down slightly from last year's $720mn, but much lower than its $1.51bn in 1Q 2017. The average Brent oil price was $50/b, compared to $54 in 1Q and $46 in 2Q 2016; respective Henry Hub gas prices were $3.20, $3.30 and $2.0/mn Btu.
Production was 3.6mn barrels of oil equivalent/day, said CFO Brian Gilvary. Excluding BP’s share in Rosneft, it was 2.4mn boe/d, up 10% year on year driven by new project start-ups, plus extra volumes in Abu Dhabi.
BP said its major projects programme is on track to deliver 800,000 boe/d of new production by 2020. Dudley also said that offshore Senegal/Mauritania gas would help build its business into the 2020s.
Three major projects have already come online in 2017: Persephone in Australia and Juniper in Trinidad (both gasfields for existing LNG plants) are in final commissioning, and Khazzan Phase 1 in Oman and (Eni-led) Zohr in Egypt (both gas) are expected online this year. BP sanctioned development of two new major gas projects: ‘R-Series’ in India and Angelin in Trinidad.
Gilvary said start-up at Khazzan was expected "by October", as the project was 99.8% complete, with gas now filling the plant. He reminded analysts that the project (BP: 60%) has 7 trillion ft³ of unconventional reserves, and that BP has agreed on a phase 2 that could expand that by 3.5 trillion ft3.
Gilvary said BP’s organic capital expenditure going forward would be in a $15bn-$17bn/yr range and is expected to be at the low end of this range in 2018 if oil price is $50/b “but this is not a floor.” He reiterated that 2017 divestments (cash received) are expected to be $4.5bn-$5.5bn, with most in 2H.
He said BP anticipated payouts related to the 2010 Macondo disaster in the US Gulf would be $4.5bn this year and $2bn in 2018.
Two weeks ago BP announced a possible US midstream initial public offering; Dudley said this represented a better approach than an outright sale as the US pipelines business was still valuable to the company.
Dudley said there was potential for gas development projects to come in ahead of schedule: Atoll in Egypt is expected onstream in 1Q 2018 but an earlier start this year was conceivable; while the schedule for Shah Deniz phase 2 in the Azeri Caspian offshore has "moved up to October 2018". He also said Maersk-operated Culzean (UK North Sea) has "also moved up" but gave no date. Maersk's official start target for Culzean is 2019.
Possible US sanctions
Dudley took a question about the potential for US sanctions to disrupt BP. He said the original language of the draft bill that went into US Congress could have had an adverse effect on Shah Deniz 2 where Russian Lukoil is a partner, and in Egypt where Rosneft is a partner.
But he said his understanding was that language had been changed to avoid "unintended consequences" and said: "We're not aware of any adverse effect in Russia or elsewhere, or on our Rosneft business. Obviously we stay away from targeted individuals." The latter is a reference to the US Treasury's recent fine of $2mn imposed on ExxonMobil for alleged direct dealings with Rosneft CEO Igor Sechin, which the US major is contesting.
Dudley also said that the move towards twice-yearly dividend payments by Rosneft which is due to be voted on at its extraordinary general meeting this September was "positive" for BP with its 19.75% stake in the Russian state-run oil company.
Mark Smedley