BP is on track to be able to make money even with oil prices below $40, its chief executive said yesterday as the company announced profits that were better than expected.
The oil major swung back into the black with a $553 million profit in the second quarter, after a $2.2 billion loss a year ago, when it suffered big charges related to the Deepwater Horizon disaster in 2010.
Excluding one-off charges, underlying profits fell by 5 per cent to $684 million as the impact of higher oil and gas prices was outweighed by the costs of writing off an abandoned project in Angola.
However, this was significantly better than the $500 million that analysts had been expecting and the shares rose more than 2 per cent to 456½p.
Bob Dudley, the chief executive, said that BP was adjusting to “the new oil price environment” and was assuming that prices would remain at about $50 over the next five years. The company had alarmed investors in February with a warning that it would need oil at $60 a barrel this year to balance its “organic sources and uses of cash”, although it was aiming to bring that breakeven point down to $35 to $40 a barrel by 2021.
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“What happened since then is . . . our production has come up quite a bit with new projects and our cost structure come down,” Mr Dudley said. As a result, the company had generated $600 million of surplus cashflow from operations in the first half, after covering its spending and dividend, even with prices averaging $52 a barrel.
This implied a breakeven of $47 a barrel, he said. “The message is: we are right on the track that we said we were heading towards at the end of the decade to be in the $30s [for breakeven].” BP’s “organic” cash breakeven target excludes payments for the Gulf of Mexico disaster — when a well exploded, killing 11 people — and the proceeds of sales, which it hopes will cancel each other out.
This year payments are skewed to the first half while sale proceeds are expected in the second. This led to a rise in net debt to $39.8 billion at the end of June, compared with $38.6 billion three months ago. Mr Dudley said that he expected debt to start falling next year and that BP would then look to buy back shares.
He dismissed a report that the company had put its entire North Sea operations up for sale but said that it would look to sell non-core assets. “Certainly not everything is on the table. We are absolutely committed to the North Sea, it’s one of our heartlands,” he said.
“We have always said there are smaller, less material, older asset that we will sell and we have been doing that.” BP has sold the Forties pipeline system and Sullom Voe terminal but it remained “deeply committed” to its big investments west of Shetland.
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BP is targeting capital expenditure of $15 billion to $17 billion a year until 2021, but said that this was likely to be at the lower end of the range next year if prices stayed about $50 a barrel and could be cut if they fell lower.
• BP is in talks with electric vehicle manufacturers over installing charge points at its service stations as it adapts to the growth of battery-powered cars. The move follows plans by Royal Dutch Shell, which is installing its first charge points in Britain this year and whose boss Ben van Beurden said last week that he planned to buy an electric vehicle for his next car. Bob Dudley, BP’s chief executive, said: “My wife and I have had hybrids for a dozen years.” He declined to give further details, but said he had no plans to change his car soon.
Shale drillers force boss to think again
Last October, Bob Dudley was confidently predicting that oil prices would rebound to between $55 and $70 a barrel for the rest of the decade. Not any more (Emily Godsen writes).
“I think oil prices going forward will be in the $45-to-$55 range,” the BP chief executive said yesterday.
What has changed his mind over the past ten months has been the speed and scale with which frackers in America’s shale fields have reacted to oil price movements. Rig counts in the United States rose rapidly late last year as crude neared $60 a barrel but they started to drop off again recently as the continued supply glut sent prices dropping to $45.
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“I did see it [the oil price] going back [higher] but seeing the responsiveness of the shale oils in the US and how well they can produce at $60 and how stressed they are at $40 to $45, that’s why my new thinking is $45 to $55 is the fairway we will be in,” Mr Dudley said. He added that American shale was now “a swing producer that responds very, very quickly to price signals” and this would be “a natural dampener” on prices.
Mr Dudley did not agree with the argument that the world is headed for another “boom and bust” structural supply shortage. “There’s a school of thought out there that says by 2019-20 that the deferred or cancelled investments of the past three or four years are going to lead to a price spike. I’m not in that camp,” he said.
Prolonged lower prices could render some parts of the world off-limits, with “some question marks about the Arctic in some countries”, he said but generally costs could come down and tax rates could be cut to make drilling viable in most areas.