BP returns to profit in 2011

Operational Momentum: BP chief executive Bob Dudley

Supermajor BP has recorded a profit of $25.7 billion for the 2011 calendar year, up from the $3.72 billion loss recorded in 2010 on the back of the Macondo disaster.

The company made a replacement cost profit of $23.9 billion for the year, up from the $4.91 billion loss recorded in 2010, on the back on reduced earnings from its exploration and production arm – down 1.27% to $30.5 billion from 2010’s $30.89 billion.

This came despite an average production average of 3.45 million barrels of oil equivalent per day, higher than the anticipated rate of 3.4 million bpd set for 2011.

BP’s fourth quarter 2011 profit was $7.68 billion, up from the $5.04 billion recorded in the third quarter and the $5.57 billion recorded in the fourth quarter of 2010.

In an announcement, BP chief executive Bob Dudley said the company’s operational momentum was returning, with the company playing to its strengths.

“2012 will be a year of increasing investment and milestones as we build on the foundations laid last year,” he said in a statement.

12 wells for 2012

The company would drill 12 exploration wells, start six major upstream projects and be operating with eight rigs in the Gulf of Mexico by the end of the year – up from its current five – it said.

The new projects – in Angola, the Gulf of Mexico and the North Sea – were expected to deliver an average unit cash margin by 2014 that is around twice that of BP’s 2011 upstream portfolio.

BP’s total hydrocarbon production for 2011 was at an average of 3.45 billion boepd, down from the average of 3.82 billion boepd recorded in 2010.

In a statement, BP said the production for the full year was impacted by higher turnaround and maintenance activity.

On a quarter by quarter basis, the fourth quarter rate of 3.49 billion boepd was higher than the 3.32 billion boepd recorded during the third quarter but lower than the 3.67 billion boepd recorded in the fourth quarter of 2010.

Production fall

In its statement, BP said the reduction reflected lower Gulf of Mexico production owing to the impacts of a drilling moratorium, though this was offset by the ramp up of production at fields offshore Angola.

The company had also announced the Salmon gas discovery in the North El Burg offshore concession in the Nile Delta and offloaded Block 06.1 in Vietnam to TNK-BP during the period.

During the quarter, BP agreed settlements with Anadarko and Cameron of $4.1 billion and $3.7 billion respectively over the Macondo disaster.

The supermajor gave $5.3 billion to the trust fund it set up in the wake of the oil spill in the fourth quarter, making a total of $10.1 billion for the year and $15.1 billion since it was established.

Legal battles

While BP now plans to hit its target of $20 billion for the fund during the coming year, a year earlier than previously estimated, it also acknowledged it was impossible to say if this would be "sufficient to satisfy all claims".

BP said that it was both "ready to settle on fair and reasonable terms" and "vigourously preparing for trial" over its outstanding legal liaiblities relating to the disaster.

It is currently suing contractors Halliburton and Transocean for costs and damages over the spill, with the companies jointly facing more than 500 lawsuits, combined for pretrial processing in federal court in New Orleans, that are scheduled to begin in court on 27 February.

BP previously said it expected the costs of sealing the blown out well, cleaning up the damage, compensating those affected and government fines to reach $42 billion.

The company said it expected the cleanup on the majority of the 4300 miles of coastline covered by the latest shoreline cleanup plan to be declared complete during 2012, adding that most of the “active cleaning” required had already been completed by the of 2011.

Asset sales

BP’s shares, which lost half their value in the aftermath of the spill, are still nearly a third lower than before the crisis as investors continue to price in the huge liabilities the company is expected to face over the disaster.

Production for 2012 was expected to be broadly flat compared with 2011, Dudley said, excluding production from assets held by TNK-BP – with the company to be henceforth reported as a separate segment.

The company also planned to continue its divestment programme, disposing of a further $38 billion of assets by the end of 2013, Dudley said.

The most recent selloff was that of its Canadian natural gas liquids business to Plains Midstream for $1.67 billion in December in a deal expected to close by the summer.

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