HOUSTON – Big Oil’s prized projects won’t face major cuts unless oil prices fall below $70 a barrel, BP’s chief financial officer told investors on Tuesday.
“We’re not expecting to adjust capital expenditures in response to oil prices,” BP CFO Brian Gilvary said in a conference call. “That would put in peril the future growth. The balance sheet could more than comfortably handle $80 a barrel.”
CEO Bob Dudley was not on the call.
Sinking oil prices have put oil company investors and suppliers on watch for any signs that they’ll trim spending next year. So far, BP isn’t making any big plans to cut spending because of oil prices, Gilvary said.
“Where we have room at the margins to pare back or reface spend without compromising future growth, we will do so,” he said. “Relative to current guidance, I expect this could make a difference of $1 to $2 billion in 2015, with lower spend in the downstream following the completion of the Whiting refinery project.”
$70 oil
It was the first word from the international oil majors, and it came a day after Goldman Sachs forecasted oil prices would fall to $70 a barrel in the second quarter of 2015 as supply outpaces global demand.
In the past two weeks, oil field service providers like Halliburton and Baker Hughes said their customers – exploration and production companies – haven’t indicated they’ll pull back on spending. But those firms have yet to set out their 2015 budgets. Next year, Gilvary said, BP is planning to focus on streamlining activity, continuing a process that began some 18 months ago as BP has sought to rein in costs and resize its businesses.
Gilvary said a $1 billion to $2 billion downward revision in 2014 spending wasn’t a result of planning for lower oil prices.
“It’s not as a result of any intervention,” he said, adding at this point it’s not expected to impact spending and oil production next year. “Our industry tends to be self-correcting, so one would expect some deflation if current oil prices remain low. We have a lot of flexibility to deal with a sustained period of lower oil prices.”
Sliding profits
BP’s third-quarter profits fell 63 percent as the Russian ruble’s value dropped significantly against the dollar and lower Russian crude prices sank earnings from its stake in state-owned Rosneft.
The London oil giant collected a profit of $1.26 billion, or 42 cents a share, in the July-September period, compared to $3.5 billion, or $1.11 a share, in the same three months last year. Revenues declined from $98.2 billion to $94.8 billion. BP boosted its quarterly dividend, to be paid in December, by 10 cents.
BP’s third-quarter daily oil production dipped less than 1 percent to 3.15 million barrels of oil equivalent, as a seven-decade oil production pact with international oil companies ended in Abu Dhabi earlier this year. BP’s upstream profits fell 20 percent.
The company also wrote down the value of upstream assets in India by $770 million, because of uncertainty in future Indian gas prices. But BP’s underlying production, which excludes the effects of the Abu Dhabi decline, rose 4.1 percent as oil output rose in the Gulf of Mexico. BP has drilled 16 exploration wells, and has made five discoveries this year, including finds in the Gulf of Mexico, in Brazil and in the UK North Sea in the third quarter.
BP’s downstream business, which includes making lubricants, fuels and petrochemicals, lost $335 million in the third quarter as it took a $552 million impairment charge after a strategic review of its petrochemicals business.
Earnings from its 19.8 percent Rosneft stake plummeted 90 percent to $87 million, as the exchange rate from Russian to U.S. currency climbed from 32.33 last year to 39.48 at the end of the third quarter. Profits were also impacted by lower oil prices in Russia, BP said.
Spending patterns
The company said it expects to spend $23 billion by the end of 2014, down from previous estimates of $24 billion to $25 billion.
BP and other oil majors are in the thick of trimming where they can, as investors urge frugality amid lower investment returns. Gilvary pointed to BP’s recent moves to separate its U.S. lower 48 shale business from the corporate parent: In recent months, it has appointed a CEO for the new business, moved it to a new office in Houston and expects some 400 jobs to fall under its umbrella.
The London oil giant, he said, has also sold of $4 billion in assets, and intends to sell $6 billion more by the end of 2015. Earlier in the year, BP sold off assets in Alaska, Texas and Oman, and it sold its aviation turbine oils business.
Despite volatile oil prices potentially hampering deal-making, Gilvary said he has “a line of sight” on at least half of the $6 billion in planned divestitures. He also hinted BP may eventually see more chances to purchase assets.
“There’s as many buying opportunities as there are selling opportunities depending on what part of the asset base you’re looking at,” he said.
Oil spill
Gilvary said BP paid out $120 million for business-economic loss claims for damages from the 2010 Gulf of Mexico oil spill, down from $810 million in such claims a year ago.
Last month, U.S. District Judge Carl Barbier in New Orleans ruled BP was grossly negligent in the lead-up to the disaster, meaning the company could face up to $18 billion in Clean Water Act fines if the judge sides with prosecutors on how many barrels of oil spilled into the Gulf. BP is planning to appeal the decision.
“The law is clear that proving gross negligence is a very high bar and BP believes the court’s findings were not warranted by the evidence presented at trial,” he said. The federal district court has yet to decide on eight statutory factors that contribute to the amount pollution fines BP might face, he added.
In the meantime, has filed a post-trial motion for a new trial because it believes key evidence used to support the gross negligence finding was excluded at trial. BP maintains it will only have to pay $3.5 billion for oil spill fines, he said.
The company has set aside $43 billion for oil spill costs.
BP shares rose 55 cents in early trading Tuesday to 42.50 on the New York Stock Exchange.
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