By Sarah Kent 

LONDON--BP PLC eked out a small profit in the final quarter of 2016, but the Deepwater Horizon disaster continued to weigh down the company and helped send it to a second consecutive annual loss.

The British oil giant also delivered some surprising news when executives said Tuesday that the company now needs oil prices of about $60 a barrel to balance its spending with cash flow, up from the $50 to $55 a barrel they had indicated last year. The company's cash generation fell late last year compared with 2015, even as oil prices staged a rally in December and rose to about $55 a barrel, roughly their current level.

BP said its replacement-cost loss--a number similar to net loss in the U.S.--was $999 million in 2016, compared with a loss of $5.2 billion a year earlier. The company reported a profit in the fourth quarter of $72 million, compared with a loss of $2.2 billion in the same period of 2015.

BP's results marked another example of the world's biggest oil companies still struggling to come to grips with a yearslong slump in oil prices that continues to drag on earnings, despite an uptick in the market in recent months. The companies have spent much of the past three years scrambling to bring their spending in line with cash generation as oil prices plummeted and investors worried about the sustainability of their sizable dividend programs.

BP caps off a mixed set of results after Chevron Corp and Exxon Mobil Corp. posted disappointing earnings and Royal Dutch Shell PLC surprised with a cash surge, despite reporting weak profits. On Tuesday, Norway's state-owned oil company, Statoil ASA, reported a net loss of nearly $2.8 billion in the fourth quarter, largely driven by its reduced long-term oil price assumptions.

For BP, the company remains encumbered by its 2010 blowout in the Gulf of Mexico, which cost the company another $7.1 billion in pretax payments last year. The company said the total pretax bill has now reached $62.6 billion for a disaster that killed 11 rig workers and spilled millions of barrels of oil into the Gulf. Cash payouts relating to the spill are expected to total around $4.5 to $5.5 billion this year, but fall sharply to around $2 billion in 2018 and a little over $1 billion in 2019.

BP's shares fell 2.4% in early London trading Tuesday after the company's underlying earnings--which strip out payments like those related to Deepwater Horizon--missed analyst expectations.

BP executives still struck a confident tone. They said the company had completed a number of acquisitions late last year, giving it access to new production to capitalize on oil prices that have been buoyed by the Organization of the Petroleum Exporting Countries decision to cut output.

After years of cost-cutting, BP said it was planning to spend more in 2017 to invest in its new fields. Its capital expenditure is expected between $16 and $17 billion this year, similar to 2016, but up from previous guidance of $15-$17 billion for the year.

Those higher-spending plans are a core reason BP says it now needs oil prices of $60 a barrel by the end of the year to cover its capital budget and dividend payouts from cash flow, up from previous expectations of $50-$55 a barrel.

The company's chief financial officer, Brian Gilvary, said he sees oil prices staying comfortably above $50 a barrel this year and cash flow reaching $21-$22 billion, enough to cover spending and dividend payouts.

Even if prices don't hit $60 a barrel--a level not seen since June 2015--he said the company's all-important dividend wouldn't be affected. The company took on $35.5 billion in debt in 2016, up from $27.2 billion at the end of 2015, in part to keep paying the dividend.

"It's probably the most secure it's looked in years," he said of the dividend.

Despite success in reducing costs and cutting capital spending more than previously announced, BP's latest set of results are a prime example of the toll low oil prices have taken. The company's underlying net cash generation tumbled 13% last year compared with 2015, hammered by the weak market. Underlying cash from operations in the fourth quarter fell nearly 24% compared with the same period a year earlier.

BP compared unfavorably with some rivals on cash generation. At Shell, cash flow from operations jumped nearly 70% in the fourth quarter. Statoil said Tuesday that it generated $900 million in cash flow in the fourth quarter and decreased its break-even oil price to $50 a barrel from $60 a barrel.

Write to Sarah Kent at sarah.kent@wsj.com

 

(END) Dow Jones Newswires

February 07, 2017 06:16 ET (11:16 GMT)

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