BP has announced record full-year replacement cost profits of $25.6 billion for 2008, a jump of 39% compared with 2007. Dividends per share paid for the year were up by 30 per cent in dollars and 40 per cent in sterling. Overall distributions to shareholders in 2008 were $13.3 billion, including $3 billion of share buybacks. Total investment for the year totalled $30.7 billion, including acquisitions and asset exchanges.
Replacement cost profit for the fourth quarter was $2.6 billion, down 24 per cent on the corresponding quarter of 2007.
BP chief executive Tony Hayward said the depressed fourth quarter result mainly reflected the recent dramatic fall in the world price of crude oil. There was also a net adverse effect of $900 million from items not expected to recur in future quarters.
These items, which arose from the unprecedented volatility of oil prices and exchange rates during the fourth quarter, included a TNK-BP loss of $700 million arising from excise duty lags and impairments, foreign exchange losses in the downstream business, and a one-off increase in the tax rate for the quarter.
Hayward said the key measure of operating cash flow was $5.6 billion for the quarter, up around a third on a year ago. He described BP's underlying financial and operational performance as "continuing to show powerful recovery."
"We have established very strong momentum in 2008 in our drive to strip out overhead costs and to make BP simpler and more efficient. There will be no let-up in that momentum which gives me great confidence that we are well positioned for the challenge of the next few years." Setting out the financial highlights of 2008, he cited:
In key strategic areas too, BP had delivered exceptional performance, with significant new access in North America in particular, he said.
"The year was one of the best in the last decade for exploration. We made significant discoveries in the US Gulf of Mexico, Angola, Algeria, Egypt and the North Sea, which underline the strength and breadth of our upstream portfolio."
"We expect that this will enable us to achieve a resource-to-production replacement ratio of more than 200 per cent and reserves replacement of over 100 per cent."
"Downstream, we are working hard to restore earnings momentum and have already closed about $2 billion of the performance gap we saw a year ago between us and our competitors."
Reviewing operational performance, Hayward said: "A year ago we set out a plan to deliver safe and reliable operations, to restore revenues and reduce the complexity and cost structure of BP. We have done exactly that."
Excluding production-sharing impacts, 2008 oil and gas production rose by 5 per cent. Nine new major projects saw start-up, including Thunder Horse in the US which has proved a particular success and is currently running at around 200,000 barrels a day.
Hayward said BP was making solid progress in reducing costs. "Our cash costs fell in the fourth quarter despite higher energy bills and inflation in the industry that was running at 15 per cent in mid-2008. Across the group we are beginning to see the impact of our cost-cutting drive, with costs falling year on year upstream and downstream and, above all, in our overheads which were down by $500 million in the fourth quarter."
Staff reductions to drive down corporate overheads totalled some 3,000 in 2008 and are expected to exceed the original target of 5,000 by the middle of 2009. "We have made good progress in slimming and simplifying the organisation while at the same time strengthening the front line, but we're not being complacent," he said. "In the current climate we especially need to maintain the momentum we have established in the drive to make BP more efficient. The mantra in BP today is: 'Every dollar counts, every seat counts.'"
Predicting likely organic capital spend of between $20 billion and $22 billion in 2009, Hayward concluded: "I expect our production to continue to grow this year. Exactly how much will depend on OPEC constraints, along with the oil price and its impact on production-sharing contracts. I also envisage our refining availability will be materially higher this year than last. I expect costs to continue to fall both from the actions we've already taken and as we begin to drive deflation into the supply chain."
"On the basis of our current plans, we expect 2009 cashflows to balance at an oil price of between $50 and $60 a barrel, with that break-even point continuing to reduce as upstream volumes grow, the full turnaround of the downstream is realised, and our ongoing cost initiatives deliver further benefits across all parts of the group."
"Our priorities are clear: continue to invest in safe and reliable operations, pay the dividend, and invest to grow our upstream business. We intend, above all, to hold our course. At BP we have been managing volatility for 100 years, in good times and bad. The next year or two will be challenging, but we are well-placed to meet that challenge."
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