By Sarah Kent and Justin Scheck
LONDON-- BP PLC on Tuesday reported a sharp drop in
first-quarter profit compared with a year earlier and saw its cash
flow squeezed as oil prices hit their lowest mark in six years.
BP managed to avoid the huge losses it experienced last quarter,
turning a $2.1 billion replacement-cost profit--a number similar to
the net income that U.S. oil companies report--down from $3.48
billion a year earlier.
The company was aided by a U.K. tax break for companies
operating in the North Sea and its downstream business--which
includes refineries, chemicals production and retail gas
stations--showed a healthy profit. But BP's revenue fell to $54.9
billion from $75.1 billion from a year earlier and its cash flow
plummeted to $1.9 billion from $8.2 billion.
The company's earnings Tuesday come at a time of uncertainty for
the British energy giant. Still reeling from the 2010 Gulf of
Mexico oil spill, BP has become the subject of takeover
speculation, with the U.K. government recently signaling that it
would block any acquisition of the company.
The results reflect a sharp decline in oil prices since last
June to a level many in the industry hope marked their nadir. Brent
crude averaged $54 a barrel in the first quarter of the year, half
its level for the same period a year earlier, BP said.
The lower oil prices dented BP's upstream performance. The
company's U.S. operations reported a replacement cost loss of $616
million, hurt by rig cancellation costs as it reins in its offshore
drilling expenses. Elsewhere in the world, the company's profits
were a quarter of their level a year earlier.
However, the company's downstream business performed much better
than a year earlier.
"We are resetting and rebalancing BP to meet the challenges of a
possible period of sustained lower prices," BP Chief Executive Bob
Dudley said in a statement. "Our results today reflect both this
weaker environment and the actions we are taking in response," he
said.
BP didn't say how much it benefited from a U.K. tax break for
oil companies tucked into the Tory budget plan last month. It cut
the supplementary charge on oil and gas companies' profit from 30%
to 20%, reversing an increase made in the 2011. The supplementary
charge is levied over and above regular corporation tax.
The company's results were "slightly better than expected," said
Kim Fustier, an analyst at Edison Investment Research. "However
this was largely thanks to one-off positive U.K. tax
effects...rather than stronger underlying performance."
The oil major has already committed to cut capital spending this
year to $20 billion in the face of weaker prices. Organic capital
spending in the first quarter amounted to $4.4 billion, down from
$5.4 billion in the first quarter of 2014.
The company is also continuing with its plan to divest $10
billion of assets before the end of the year and has already
completed $7.1 billion in sales. The divestment program follows a
much larger $38 billion downsizing in the wake of the Gulf of
Mexico oil spill in 2010.
Mr. Dudley added that BP would continue to look to take
advantage of any opportunities to further cut costs or capital
expenditure as a result of the lower oil price environment.
BP announced a steady dividend of 10 cents a share and said it
remains committed to maintaining payments to shareholders.
Write to Justin Scheck at justin.scheck@wsj.com and Rory
Gallivan at rory.gallivan@wsj.com
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