Oil drop

Europe’s second-largest oil company, BP, has announced a $3.3bn drop in fourth-quarter profits after falling oil prices weakened global revenues.

The oil giant posted full-year profits of $25.6bn for 2008, a 39 per cent increase compared to 2007. However, results for the fourth quarter were down 24 per cent compared to same period last year.

Tony Hayward, chief executive of BP, said the volatility in oil prices was the reason behind the poor results, but described underlying financial and operational performance as ‘continuing to show powerful recovery’.

The key measure of operating cashflow was $5.6bn for the quarter, up around a third on a year ago, and the company’s total investment for the year totalled $30.7bn, including acquisitions and asset exchanges.

Oil and gas production for 2008 rose by five per cent after the company started nine new major oil-delivery projects. The company expects that these will help it achieve a resource-to-production ratio of more than 200 per cent.

Predicting organic capital spend of between $20bn and $22bn in 2009, Hayward said: ‘I expect our production to continue to grow this year. Exactly how much will depend on OPEC constraints, along with the oil price and its impact on production-sharing contracts.

‘I also envisage our refining availability will be materially higher this year than last. I expect costs to continue to fall both from the actions we’ve already taken and as we begin to drive deflation into the supply chain.

‘On the basis of our current plans, we expect 2009 cashflows to balance at an oil price of between $50 and $60 a barrel, with that break-even point continuing to reduce as upstream volumes grow, the full turnaround of the downstream is realised, and our ongoing cost initiatives deliver further benefits across all parts of the group.

‘Our priorities are clear: continue to invest in safe and reliable operations, pay the dividend, and invest to grow our upstream business. We intend, above all, to hold our course. At BP we have been managing volatility for 100 years, in good times and bad. The next year or two will be challenging, but we are well placed to meet that challenge.’

BP lowered its overheads by $500m in the final quarter and plans to continue its cost-cutting programme through 2009. Hayward said that the company now expects to exceed its target of 5,000 job cuts by the middle of this year.