BP chief focuses on future as oil giant posts loss

Tuesday 01 February 2011 17:48 GMT

BP's new chief executive shifted focus at the oil giant to the "future rather than the legacy of the past" today as it revealed the Gulf of Mexico oil spill saw the company sink to its first loss in nearly 20 years.

Bob Dudley unveiled a raft of strategic moves at the embattled firm, including a return to dividend payments of seven cents a share, increased spending on exploration and the proposed sale of two key US refineries.

The developments came as BP posted a loss of 4.9 billion US dollars (£3.1 billion) in the year to December 31, compared with profits of 13.9 billion US dollars (£8.7 billion) in 2009, after the financial impact of the fatal Deepwater Horizon explosion was deducted.

BP once again upped its estimate of the cost of the disaster to 40.9 billion US dollars (£25.5 billion) after it took an additional 1.04 billion US dollars (£647.8 million) hit in the fourth quarter.

But the company's decision to resume dividend payments is a signal that the firm is recovering and will be welcomed by pension holders and investors given the stock previously accounted for an estimated one in every six pension pounds. BP said the payment will grow over time, in line with the "improving circumstances of the company".

The disposals in North America - including a plant in Texas City, which was the site of a fatal fire and explosion in 2005 - will halve refining capacity in the US and signal a shift away from the country, where its credibility is tarnished.

Speaking at BP's head office in London, Mr Dudley said resuming the dividend, halving US refining capacity and investing in exploration were all part of a push to give BP shareholders greater value.

In a sign that BP was trying to move on from the events of 2010, he said: "It's about choices for the future rather than the legacy of the past."

Though he added: "We remain deeply sorry for what happened and its effects on the families and communities involved. Nothing can restore the loss of those 11 men."

Mr Dudley said plans to reshape its downstream business - the oil and gas operations which take place after the production phase - would involve concentrating on growth in developing and emerging markets.

As well as the Texas City plant, the firm also plans to sell its refinery at Carson, near Los Angeles, California.

Discussing the disposals, Mr Dudley said: "We remain solidly committed to doing business in the US."

But explaining part of the reasoning behind the move to sell the two refineries, Mr Dudley said the plants' current financial performance did not meet its financial goals and failed its "strategic hurdles".

Texas City was the site of another BP disaster six years ago, when a fire and explosion killed 15 workers and injured more than 170 others. BP has paid more than 100 million US dollars (£62 million) in fines since the incident.

The decision follows a series of upstream asset disposals in the wake of the Gulf of Mexico disaster. BP has managed to claw back around 20 billion US dollars (£12.6 billion) by selling interests in Argentina, North America, Egypt, Venezuela, Vietnam and Colombia. It said it was on track to meet its target of up to 30 billion US dollars (£18 billion).

BP said the ongoing divestment programme, as well as ongoing restrictions in the Gulf of Mexico, would hit its production levels and expects to produce some 3.4 million barrels of oil and gas a day in 2011.

In the fourth quarter, BP said it averaged around 3.67 million barrels of oil and gas a day - 9% lower than the same period in 2009.

But BP said in 2010 it obtained licences to access basins in Brazil, the South China Sea, Indonesia, Azerbaijan and in 2011 Australia and Angola and would boost its capital expenditure on exploration.

It added that in the next six years it plans to start up a total of 32 new projects, expected to contribute an extra one million barrels a day by the end of 2016.

But BP has appeared to scrap its production targets, which were previously a key feature of its annual reports.

Commenting on this shift in focus, Mr Dudley said: "We've been careful not to put out a production target. We want to create value and not volume. It's in the best interests of shareholders."

BP reported lower-than-expected profits of 4.4 billion US dollars (£2.7 billion) in the fourth quarter. Analysts had forecast around 5 billion US dollars (£3.1 billion) for the period.

The firm said it had benefited from higher oil prices in 2010, which were pushing 90 US dollars a barrel around the year-end.

BP shares dropped after the results were released but, having fallen from a high of 655p in April to a low of 303p in June, they have steadily climbed back to around 485p.

BP lauded its recent £10 billion deal with Russian oil giant Rosneft to form an Arctic exploration alliance.

However, it is embroiled in a legal tussle with shareholders at TNK-BP, another Russian joint venture, who argue that the new deal breaches its shareholder agreement.

Pressed over the implications of the dispute with TNK-BP over its deal with Rosneft, Mr Dudley remained defiant and repeatedly asserted that the two parties "have good relations".

The company also continues to assert that its partners in the Gulf of Mexico - which include Transocean and Halliburton - would be pressed to take the brunt of the 40 billion US dollars hit from the disaster. So far, BP has billed its partners six billion US dollars (£3.7 billion).

BP last reported an annual loss in 1992, when low oil prices, recession and strategic errors saw chief executive Bob Horton lose his job. The firm lost £458 million that year.

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