Uchenna Izundu
International Editor
LONDON, Feb. 3 -- BP PLC will continue to focus on reducing costs to improve the company's efficiency, said BP Chief Executive Tony Hayward, as he reported a $2.6 billion replacement cost profit in the fourth quarter, a fall of 24% from a year ago.
Hayward attributed this to a "dramatic fall" in global oil prices, which peaked at $147/bbl in July 2008 and have since plummeted more than 70%, and to other incidents, which also contributed to a $900 million net adverse effect. These included a rise in taxes, a TNK-BP loss of $700 million arising from excise duty lags and impairments, and foreign exchange losses in the downstream business.
A protracted and bitter disagreement between BP and its Russian joint venture partners was resolved in September when Robert Dudley decided to quit his leadership of TNK-BP.
However, over 2008, BP's income was $25.6 billion, which was a 39% increase compared with the same period a year before. Analysts were disappointed with the results as they had been expecting $26.7 billion, and some blamed the high tax rate.
Hayward stressed that BP was "continuing to show powerful recovery" from the operational problems it suffered in 2007, such as refining issues and health and safety. It has since addressed refining capacity at its Texas City and Whiting sites.
Excluding production-sharing agreements, BP produced 3.84 million b/d in 2008—5% ahead of 2007.
Hayward became chief executive of BP in 2007 and has promised to deliver a cost cutting program (OGJ Online, Aug. 13, 2007, p. 32). Last year it axed 3,000 from its staff, and in 2009 expects to shed more than 5,000 roles by midyear. BP has lowered overhead by more than $500 million.
Hayward said: "There will be no let-up in that momentum, which gives me great confidence that we are well positioned for the challenge of the next few years."
The company's capital spending this year will be $20-22 billion. Hayward said that it is using $50-60/bbl as a base for its projections, suggesting that this is the figure at which industry could break even.
BP's priorities will be "to invest in safe and reliable operations, pay the dividend, and invest to grow our upstream business," added Hayward.
Contact Uchenna Izundu at [email protected].