OREANDA-NEWS. May 2, 2012. BP reported its financial results for the first quarter of 2012. Underlying replacement cost profit, adjusted for non-operating items and fair value accounting effects, was USD 4.8 billion for the quarter, compared to USD 5.0 billion in the previous quarter. The quarter’s result was impacted adversely by a USD 541 million consolidation adjustment in respect of unrealised profits in inventory held within the downstream business (see notes).

The company also said that it is making good progress towards the operational milestones that it expects to meet in 2012 – advancing the development of major new projects, continuing to gain promising new exploration access, and continuing its USD 38 billion divestment programme.

Group chief executive Bob Dudley said: “We have made a good start against our strategic priorities for 2012. During the quarter we gained access to significant new deepwater and US shale exploration acreage, our ongoing divestment programme has reached USD 23 billion, and we have five deepwater rigs at work in the Gulf of Mexico. This operational progress will underpin the financial momentum we expect to come through as we move into 2013 and 2014.”

Operating cash flow for the quarter was USD 3.4 billion, compared to USD 2.4 billion in the first quarter of 2011. The net cash outflow relating to the Gulf of Mexico oil spill was USD 1.2 billion for the quarter compared to USD 2.8 billion a year earlier. The quarter’s cash flow was adversely affected by an increase of around USD 3 billion in net working capital as inventory levels and prices increased. At the end of the quarter, gearing was 20.7 per cent and BP held just over USD 14 billion in cash. The company today announced a dividend of 8c per share for the first quarter of 2012.

Underlying replacement cost profit in the upstream improved compared to the previous quarter, due to the better environment, a higher contribution from gas marketing and trading and lower costs.

BP reported oil and gas production, excluding TNK-BP, in the first quarter of 2.45 million barrels of oil equivalent a day (boe/d). Reported production in the second quarter is expected to be lower, affected by the normal seasonal increase in turnaround activity. TNK-BP production was 1.02 million boe/d net to BP and in the quarter BP received a cash dividend from TNK-BP of USD 690 million.

Despite a challenging external environment, all three downstream businesses – fuels, lubricants and petrochemicals – delivered higher underlying replacement cost profits than in the previous quarter.

Strategic progress

BP continues to make progress against its strategic 10-point plan to grow value for shareholders over the next three years.

It has now announced divestments totalling approximately USD 23 billion since the beginning of 2010. BP completed the USD 1.2 billion sale of gas assets in Kansas in March, the USD 1.7 billion sale of its Canadian natural gas liquids business in April and agreed in March to sell its Southern North Sea gas assets to Perenco for USD 400 million. It continues to make progress with the divestments of two of its US refineries and associated marketing assets.

BP today also announced that, as it continues to focus its businesses worldwide around major assets and future growth opportunities, it is marketing for sale its interests in certain non-strategic assets in the Gulf of Mexico, including the Marlin, Horn Mountain, Holstein, Ram Powell and Diana Hoover fields.

Reflecting its increased focus on exploration, BP has added significantly to its interests in promising South Atlantic equatorial margin plays during the quarter, farming-in to four exploration concessions with Petrobras in Brazil, deepening its interests offshore Namibia, and being awarded three new blocks offshore Uruguay. BP also gained access to the promising potentially liquids-rich Utica shale formations in Ohio.

BP remains on track to start up six new major upstream projects in 2012 with Clochas-Mavacola in Angola and Galapagos in the Gulf of Mexico expected to start in the second quarter. BP continues to progress plans for the Mad Dog Phase II project in the Gulf of Mexico; the final investment decision for the project is expected in 2013. Five deepwater rigs are operational on BP-operated fields in the Gulf of Mexico; two undertaking appraisal, two undertaking production activity and one plugging and abandoning a well. BP expects to have eight rigs operating in the Gulf of Mexico before the end of the year.

In the downstream, construction of the Whiting refinery project is over 60 per cent complete and remains on track for start-up in the second half of 2013.

US progress

During the quarter, BP made payments of USD 1.5 billion to the USD 20 billion Trust, including USD 250 million following settlement with Cameron. At the end of the quarter, BP had made payments into the Trust totalling USD 16.6 billion and expects its payments to end in the fourth quarter of this year, a year earlier than initially anticipated.

At the end of the first quarter, BP had paid a total of USD 8.3 billion in individual, business and government entity claims, advances and other payments. On 18 April, BP announced it had, subject to court approval, reached definitive and fully-documented agreements with the Plaintiffs’ Steering Committee to resolve the substantial majority of eligible private economic loss and medical claims stemming from the Deepwater Horizon accident and oil spill.

The cost of the proposed settlement is expected to be around USD 7.8 billion, to be paid from the Trust. While BP has sought to reliably estimate the cost of the settlement agreements, it is possible that the actual cost could be higher or lower than this estimate, depending on the outcomes of the court-supervised processes. The estimated cost of the settlement is not expected to result in any increase to the total charge taken in respect of the Gulf of Mexico oil spill, which remains at USD 37.2 billion at the end of the first quarter.