BP Fourth-Quarter Earnings Decline as Oil Production Drops

BP Plc said fourth-quarter profit declined as oil and natural gas production slipped at Europe’s second-biggest energy company.

Net income fell to $1.6 billion from $7.7 billion a year earlier, the London-based producer said today in a statement. Adjusted for one-time items and changes in inventory, earnings were $4 billion. That beat the $3.7 billion average estimate of 16 analysts surveyed by Bloomberg. Output excluding Russia fell 7 percent to 2.3 million barrels a day from a year earlier.

Chief Executive Officer Bob Dudley is focusing on the most profitable oil and gas after shrinking the company in the wake of the 2010 U.S. Gulf of Mexico oil spill. BP is struggling to reverse production declines after selling off $38 billion in assets and divesting its stake in Russian venture TNK-BP, which was responsible for about a quarter of output.

Profit was “higher than consensus expectations due to a very low effective tax rate, but this does not provide any guidance for 2013,” Oswald Clint, an analyst at Sanford C. Bernstein & Co., said in an e-mailed note. “Rising capex, declining production and lower upstream profitability leaves us neutral on BP, especially with the final cost of the Gulf of Mexico oil spill still uncertain.”

Royal Dutch Shell Plc, the biggest European oil company, last week reported earnings below analysts’ expectations as lower North American fuel prices hurt profits. Exxon Mobil Corp., the world’s largest energy company by market value, beat expectations on the strength of U.S. refining.

Shares Rise

The shares rose 1.4 percent to 468.7 pence at the close in London. BP fell 7.8 percent last year.

BP said investment will rise in 2013 to as much as $25 billion from $23 billion last year as it focuses on higher-margin projects, with four new projects starting this year in Angola, Australia, the Gulf of Mexico and Azerbaijan. Investment will rise to between $24 billion and $27 billion from 2014 to the end of the decade, the company said.

Oil company profits have been helped by Brent crude prices, the benchmark for two-thirds of the world, that were the highest ever on average last year at $111.68 a barrel. BP estimates that every $1 gain in the Brent price bolsters pretax operating profit by $300 million a year, according to information on its website.

Dividend Maintained

BP maintained its dividend at 9 cents a share for the fourth quarter and said that net debt at the end of the quarter was $27.5 billion, down from $29 billion a year earlier. Shares are still about a third lower than before the April 2010 Gulf spill.

“We have moved past many milestones in 2012, repositioning BP through divestments and bringing on new projects,” Dudley said in a statement. “This lays a solid foundation for growth into the long term.”

BP said underlying oil and gas production, stripping out the impact of divestments, should increase this year after little change in 2012. Reported output will decline as divestitures shave off 150,000 barrels a day.

BP reached its $38 billion divestment target a year early. It has sold off half its upstream installations such as oil platforms, a third of its wells and half of its pipelines, Dudley said in December. Still, the sales shed just 9 percent of the company’s production and 10 percent of its reserves.

More Sales

Further divestments will take place, though the focus is on strengthening exploration and developing projects, Dudley said in a Bloomberg Television interview.

“Big acquisitions are just not on our plate right now,” he said.

BP in October agreed to sell its half of TNK-BP to OAO Rosneft, which bought the entire venture for about $55 billion in the biggest oil industry deal in more than a decade. BP is reinvesting some of the cash from the deal in Rosneft shares, leaving it with almost 20 percent of Russia’s biggest producer.

BP is still in talks with the U.S. over civil claims from the spill. On Nov. 15, it reached a settlement with the Justice Department, agreeing to pay $4.5 billion to end all criminal charges and resolve securities claims relating to the disaster. The civil trial is due to start on Feb. 25 in New Orleans.

“We’ve said we would settle but it would have to be on reasonable terms,” Dudley said in a Bloomberg Television interview today. “Our team is very prepared, we’re assuming the trial will go ahead.”

The charge for the Gulf spill rose by $4.1 billion after the criminal settlement, bringing the total to $42.2 billion.

State Suits

The company also raised its estimate of the cost of a settlement with most private claimants who sued over the spill to $8.5 billion from $7.8 billion. The settlement, reached in March, resolves claims by most non-government parties for economic and environmental loss and physical injuries caused by the spill or cleanup.

BP said the estimate increased by $400 million because the claims administrator’s interpretations of some awards to plaintiffs were higher than the company’s assessments. BP also added $280 million for higher-than-estimated administrative costs.

State and local governments along the Gulf of Mexico have presented claims for economic loss and property damage of more than $34 billion, including punitive damages, BP said in the earnings statement today. Alabama, Mississippi and Florida formally presented their claims last month under the U.S. Oil Pollution Act, the company said.

“Significant uncertainty exists in relation to the outcome of any litigation proceedings and the amount of claims that will become payable by BP,” the company said. “However BP considers the methodologies used to calculate these claims to be seriously flawed, not supported by the legislation and to substantially overstate the claims.”

Profit in the refining unit increased to a record in 2012, though refining margins fell in the fourth quarter from the previous three months, BP said.

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