British Petroleum has announced a fall in profit by more than $1 billion this year after oil prices per barrel fell by over 50%.
Figures released have shown that this year, from July to September, BP’s profits totalled $1.23 billion, almost 50% less than last year’s equivalent figure of $2.38 billion. The figures for total revenue this year compared to last year told a similar story – $94.8 billion was made a year ago compared to $45.9bn this year. These are the first figures of their kind in the industry to be released this quarter, but it is likely that other oil companies will have experienced comparable drops in profits and revenue.
Falling Oil Prices
This comes as prices per barrel of oil have fallen from over $100 last year to just under $50 this year.
The $1.23 billion figure reflects replacement cost profits – a standard measure used that is in the industry, taking into account the cost of oil. The actual or underlying profit for the quarter was closer to $1.8 billion which, while still rather significantly lower than last year’s $3 billion, was still higher than the estimates of $1.2 billion given by analysts at the beginning of this year. This exceeding of expectations caused BP’s share prices to go up by 1.8% after the profit announcements were made.
In accordance with falling oil prices, falling profits and a generally more trying atmosphere in the oil industry, BP have announced a drop in expenditure by $1 billion over the last year and continue to project falling expenditure for the rest of 2015 – they now expect to spend around $19 billion; somewhat lower than the $25 billion they predicted last year.
Something that will figure on BP’s list of expenses for this year will be reparations from the oil spill in the Gulf of Mexico back in 2010. They’ve agreed a $20 billion settlement over some of the legal issues and have increased their overall cost estimate for the disaster to around $55 billion. Raising the money for all of this will involve BP selling of some of their assets.
“Costs Being Attacked Aggressively”
While the outlook is easy to paint as borderline disastrous for BP, it is important to remember that despite profits falling, they are still generating a huge amount of capital on a regular basis and, as one stockbroker at Hargreaves Lansdown has said, “costs are being attacked aggressively to suit the difficult backdrop.”
In the long term, it seems, the outlook for BP is not so bad. They are not alone in experiencing falling profits; indeed that which affects them affects the industry as a whole. As BP’s CEO Bob Dudley has said; “BP has successfully adapted to changing circumstances many times in its history and, in a hard time for the entire industry, I believe we will once again successfully take on today’s challenges.”
While it is unlikely that BP’s CEO would actually say anything different at such a time, his statements do not seem entirely empty; it is unlikely that such a powerhouse in the industry will quite yet.