BP reported a drop in fourth-quarter results and raised the price of oil at which it can balance its books this year to 460 per barrel due to higher spending following a string of investments.
Profit adjusted for one-time items and inventory changes totaled $400 million, compared with $196 million in the year-earlier period and sliding past estimates of Bloomberg and Reuters analysts, primarily due to primarily due to $328 million in one-off charges.
Unlike peers Royal Dutch Shell Plc and Exxon Mobil Corp., which said cash flow now covered spending and dividends at current oil prices, BP said it wouldn’t achieve that until the end of the year, and only if Brent crude rises to about $60 a barrel.
“The recently-announced portfolio additions will be accretive to cash flow over the longer term but will require additional cash outflow in the early year… BP now anticipates balancing its organic sources and uses of cash by the end of 2017 in a Brent oil price environment of around $60 a barrel,” BP CEO Bob Dudley said in a statement.
After the average oil price fell to its lowest in 12 years at $44 a barrel last year, BP said it expected prices to have found a floor for this year at $50 a barrel following a decision by major OPEC and non-OPEC producers to limit output.
The British oil and gas company, had previously targeted a breakeven oil price of $50-55 a barrel.
The new target reflects an uptick in planned spending to $16-17 billion from $16 billion in 2016.
Its adjusted downstream profit before interest and tax, which includes refining and trading, fell 28 percent in the fourth quarter to $877 million, it said in a statement. The partial shutdown of its U.S. Whiting refinery, the company’s largest, hurt sales in the period, while the expense of the turnaround drove up costs.
Net debt continues to climb, with the leverage ratio rising to 26.8 percent at the end of 2016 from 21.6 percent a year earlier, the statement shows. BP has pledged to cap it at 30 percent.
Oil and gas production totaled 2.19 million barrels of oil equivalent a day in the quarter, down 5.5 percent from a year earlier. Crude’s recovery drove adjusted earnings from the upstream business to $400 million, compared with a $728 million loss a year earlier.
BP's production is expected to rise this year as it is set to start up eight projects, including in Oman and Azerbaijan, the largest number in the company's history in a single year. The company hopes to add 800,000 barrels per day of new production by the end of the decade.
The company has been on a spending spree in recent months, concluding a string of deals, including in Eni's giant Zohr offshore gas field in Egypt, contracts in Abu Dhabi and Azerbaijan and a stake in exploration areas off Mauritania and Senegal from Kosmos KOS.
Its burst in activity marks a return to growth for the company whose deadly 2010 Deepwater Horizon rig explosion in the Gulf of Mexico forced it to sell assets worth billions of dollars. But this growth also means higher costs.
BP's annual underlying replacement cost, its definition of net profit, slumped to its lowest level in at least a decade to $2.59 billion. It reported an annual loss of $542 million in its oil and gas production division, known as upstream, while profits for the refining and trading division were down 25 percent at $5.6 billion.
The oil giant’s BP's bill to compensate for damages caused by the explosion and ensuing oil spill have risen to $62.6 billion.