BP's Fourth Quarter 2009 Profits Up 70%
BP reported a sharp year-on-year increase in fourth quarter profits as it announced that its oil and gas production increased by more than four percent in 2009 and the company continued its industry-leading 17-year run of increasing reserves.
The increase in production was well ahead of the company's expected long-term average growth rate of 1-2 percent and reflected the ramp-up and start-up of major new projects, including the first full year of production from the Thunder Horse field in the US Gulf of Mexico. BP's reserve replacement ratio for the year was 129 percent -- making 2009 the seventeenth consecutive year of reserve replacement of at least 100 percent.
The company announced that underlying replacement cost profit for the fourth quarter of 2009, before non-operating items and fair value accounting effects, was $4.4 billion -- an increase of 70 percent on the same period in 2008. Full year replacement cost profit for 2009 was $14 billion, down 45 percent on the record full year profit of 2008, mainly reflecting the weaker market environment of lower average oil and gas prices and depressed refining margins.
Group chief executive Tony Hayward said 2009 had been a "very good" year for BP, exceeding many of the expectations he had set out for the company at the beginning of the year, despite the weak external environment. "These results provide the clearest demonstration of the progress we have made and the momentum we have established in growing our business and making it more efficient," Hayward said.
Upstream production had been very strong in 2009, he said. 2010 production is expected to be slightly lower, reflecting the benefit in 2009 of the absence of a significant hurricane season. This expected level of 2010 production is in line with the guidance given to analysts in BP's strategy update in March last year. Production growth is expected to resume in 2011, and BP's longer term guidance is unchanged.
BP's refineries were largely restored to their full operating capability, delivering their highest level of availability since 2004.
Cash costs for 2009 were more than $4 billion lower than for 2008, with approximately 60 percent of that total delivered by direct interventions by the company. Reducing the underlying cost structure of the Group remains a management priority in 2010. The company's drive to streamline and simplify its business, begun in late 2007, has, in addition, resulted in a net headcount reduction of around 7,500.
"I am pleased at the track record we are building of delivering on our promises to shareholders," Hayward said.
Capital expenditure for the full year totalled $20 billion, while BP's level of gearing ended the year at the bottom of the target range of 20-30 percent. Proceeds from disposals, as the company optimised its portfolio, were $2.7 billion for the full year.
The company indicated that it expected organic capital expenditure of around $20 billion and disposal proceeds of $2-3 billion in 2010. It also announced that, subject to shareholder approval, it intends to replace the current dividend reinvestment programs with an optional scrip dividend for those shareholders who choose to take their dividends in shares rather than cash.
During the year the company gained access to significant new resource opportunities such as the Rumaila oilfield in Iraq -- one of the great oil fields of the world -- coalbed methane in Indonesia and onshore gas in Jordan, as well as strengthening its position in existing core areas including the deepwater Gulf of Mexico and Egypt's Nile Delta. BP's track record of exploration success also continued with the ultra-deep giant Tiber discovery and confirmation of the Mad Dog South extension in the Gulf of Mexico, and three further discoveries in block 31 offshore Angola.
Hayward said that this success in exploration and access in 2009 meant "our confidence in the longer term has been reinforced."
In Refining and Marketing, 2009 earnings were impacted by extremely weak trading conditions, particularly in the fourth quarter. However, operational improvements across all of BP's refineries resulted in refinery availability of 94 per cent. Progress in simplification and an exit from some retail businesses reduced cash costs in Refining and Marketing by over 15 per cent. "We will remain focussed on further reducing costs and further increasing availability in 2010," said Hayward.
Looking forward, Hayward said that BP expects recovery in the major economies of the US and Europe to be "slow and gradual." While oil markets look well supported by OPEC, the company expects gas markets to remain volatile and refining margins to remain depressed for the foreseeable future.
"Our strategy remains the same: delivering profitable growth in the upstream; driving cost efficiency in the downstream and at the corporate centre; and investing with discipline and focus in Alternative Energy.
"2009 has been one of the best years for BP and its shareholders since the merger with Amoco. But we are not resting on our laurels. There's a lot more to be done."
- BP's fourth-quarter replacement cost profit was $3,447 million, compared with $2,587 million a year ago, an increase of 33%. For the full year, replacement cost profit was $13,955 million compared with $25,593 million a year ago, down 45%.
- Non-operating items and fair value accounting effects for the fourth quarter had a net $937 million unfavorable impact compared with a net $18 million unfavorable impact in the fourth quarter of 2008. For the full year, the respective amounts were $622 million unfavourable and $650 million unfavorable. Non-operating items for the fourth quarter and full year 2009 included a goodwill impairment of $1.6 billion relating to our US West Coast fuels value chain in Refining and Marketing.
- Finance costs and net finance income or expense relating to pensions and other post-retirement benefits were $302 million for the fourth quarter, compared with $251 million for the same period last year. For the full year, the respective amounts were $1,302 million and $956 million.
- The effective tax rate on replacement cost profit for the fourth quarter and full year was 34% and 33% respectively, compared with 44% and 36% a year ago. Adjusting for the impact of the goodwill impairment in Refining and Marketing, which is not tax deductible, the effective tax rate for the fourth quarter was 27% and for the full year was 31%. In 2010, we expect the effective tax rate to be around 33-34%.
- Net cash provided by operating activities for the quarter and full year was $7.3 billion and $27.7 billion compared with $5.6 billion and $38.1 billion respectively a year ago.
- Net debt at the end of the quarter was $26.2 billion. The ratio of net debt to net debt plus equity was 20% compared with 21% a year ago.
- Cash costs for the full year were more than $4 billion lower than in 2008, of which approximately 40% related to foreign exchange benefits and lower fuel costs. Excluding the effects of changes in exchange rates and fuel costs, we expect further reductions in cash costs in 2010.
- Total capital expenditure, including acquisitions and asset exchanges, for the fourth quarter and full year was $5.9 billion and $20.3 billion respectively. Excluding acquisitions and asset exchanges, capital expenditure in 2009 was $20.0 billion. Disposal proceeds were $1.1 billion for the quarter and $2.7 billion for the full year. In 2010, we expect capital expenditure, excluding acquisitions and asset exchanges, to be around $20 billion and we expect disposal proceeds of $2-3 billion.
- The quarterly dividend, to be paid in March, is 14 cents per share ($0.84 per ADS), the same as a year ago. In sterling terms, the quarterly dividend is 8.679 pence per share, compared with 9.818 pence per share a year ago, a decrease of 12%.
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