BP PLC Tuesday resumed its corporate dividend and deepened strategic changes. But the company’s earnings came in below expectations, as BP signaled that short-term oil and gas volumes would continue to drop.
Early market reaction to the report was somewhat negative. This morning BP shares were off 1.9 percent, or 9 pence, at 476p, on a day when peers like Royal Dutch Shell PLC and Total SA were up.
The U.K.-listed energy giant said it will overcome short-term pain by dramatically shrinking its refining capacity and chasing new exploration opportunities.
“2011 will be a year of recovery and consolidation as we implement the changes we have identified,” said BP Chief Executive Bob Dudley in a statement. “It will also be a year in which we have the opportunity to reset the company, adjusting the shape of our business,” he said.
BP said it plans to sell half its U.S. refining capacity–the Texas City and Carson plants–in order to focus on faster-growing fuel markets in emerging economies. These sales, “will make BP the smallest refiner among its international competitors,” and reduce its total capacity by around a fifth, a BP spokesman said.
The Texas City refinery was the site of a major industrial accident in 2005 that killed 15 workers. The Texas City calamity has often been often compared to the 2010 Macondo spill in the Gulf of Mexico, which has been called the biggest oil spill in history.
As was widely expected, BP also said it will resume its quarterly dividend payment, which was suspended in June, at seven cents a share. BP’s quarterly dividend before the Gulf of Mexico spill was 14 cents a share.
BP said its clean replacement cost of supplies, a keenly-watched figure that strips out gains or losses from inventories and other non-operating items, for the three months ended Dec. 31 totaled $4.36 billion, compared with $4.38 billion for the fourth quarter of 2009.
This was well below expectations of $4.87 billion in a Dow Jones Newswires poll of 10 analysts. The shortfall was largely due to trading losses and a higher effective tax rate than expected, a BP spokesman said.
“The market may be slightly underwhelmed by the lack of a more radical restructuring plan but with Macondo still an ongoing issue it may be too early for BP to implement more radical plans,” said Evolution Securities analyst Richard Griffith.
Despite the worse-than-expected results, “BP remains significantly oversold,” said ING analyst Jason Kenney. The new dividend payment is generous, but will give BP the financial flexibility to invest and grow, he said.
Total oil and gas production was 3.673 million barrels a day, a decline of 9.4% on the year following a number of large asset sales.
BP said it expects an even deeper fall in production in 2011 to 3.4 million barrels of oil, 11.5% below the 2010 average and 15% below the 2009 average. This is larger than the 10% production fall BP predicted as a result of the $22 billion in asset sales undertaken since the Deepwater Horizon accident.
The lower production forecast is because BP will struggle to drill any wells in the Gulf of Mexico this year due to the stringent demands of regulators, said a London-based analyst who did not wish to be named. BP could lose 80,000 barrels a day of oil production in the Gulf this year simply by not being able to drill wells on existing fields, the analyst said.
BP said it will work harder to grow its output from a lower base by increasing investment by 10% in exploration in key oil and gas basins, such as the Russian Arctic exploration venture with OAO Rosneft (ROSN.RS) announced last month. A group of Russian shareholders who own 50% of BP’s other Russian venture, TNK-BP Ltd, have filed an injunction to block the Rosneft venture. A hearing is scheduled in London’s High Court later today.
Net profit for the quarter was up 29.6% at $5.57 billion, compared with $4.30 billion a year ago, largely due to a gain of almost $1 billion in the value of the company’s oil and gas inventories.
For the full year, BP made a net loss of $3.59 billion, the first time the company has done so since 1992. This was entirely down to the huge write off of costs for the Gulf of Mexico spill, which rose by $1 billion in the fourth quarter to total $40.9 billion.
