BP raises
dividend as operational momentum returns
BP group
chief executive Bob Dudley today said that returning operational momentum and
strong cash flow generation in 2011 gave the company increasing confidence in
its plans to grow value for shareholders..
As BP
reported its results for the fourth quarter and full year 2011, Dudley said:
“BP is on the right path, working to grow value through the 10-point plan we laid
out in October. Above all, we have a relentless focus on safety and risk
management. And we are playing to our strengths - investing in exploration,
deep water, gas value chains, giant fields and a world-class downstream, while
actively managing our portfolio to grow value.��
“2012 will be a year of increasing investment and milestones as we build on
the foundations laid last year. As we move through 2013 and 2014, we expect
financial momentum will build as we complete payments into the Gulf of Mexico
Trust Fund, restore high-value production and bring new projects on stream.��
With operating cash flow generated by BP in 2011 reaching some $22bn - over 60
per cent higher than in 2010 - Dudley confirmed the company’s expectation
that net cash flow in 2014, in a $100 oil price environment, would be around 50
per cent higher than in 2011. Half of the additional cash is expected to be
used for re-investment and half for other purposes including increased
shareholder distributions.
BP today announced a 14 per cent increase in its quarterly dividend - to 8
cents per share for the fourth quarter of 2011 - the first rise since the
company resumed paying a dividend a year ago. BP's underlying replacement cost
profit for the quarter rose by 14 per cent on the same period in the previous
year.
In a presentation to the financial community later today, Dudley and BP’s
executive team will give details of the company’s results and forward
strategy, setting out the milestones they expect for BP in 2012, including:
- drilling 12 exploration wells,
double the 2011 total;
- starting up six major upstream
projects in higher-margin areas;
- operating with eight rigs in
the US Gulf of Mexico by the end of the year;
- continuing progress with the
major divestment programme to strengthen its portfolio;
- increasing capital investment
to around $22 billion as BP invests to grow in the upstream;
- completing the delivery of a $2
billion improvement in underlying performance in the downstream, relative
to 2009;
- completing payments into the
Gulf of Mexico Trust Fund.
4Q 2011 Results
BP’s replacement cost profit, on an underlying basis, adjusting for
non-operational items and fair value accounting effects, was $5.0 billion for
the fourth quarter, compared to $4.4 billion a year earlier. For the full year
underlying replacement cost profit was $21.7 billion compared to $20.5 billion
for 2010.
Operating cash flow in 2011 was $22.2 billion, in a $111 oil price environment,
up 63 per cent on the total for 2010. At the end of 2011 BP’s net debt stood
at $29.0 billion, representing a gearing level of 20.5 per cent.
Dudley said he expects organic capital spending will grow to some $22 billion
in 2012, up from 2011’s $19 billion as BP invests in growth. He anticipates
investment of $16-17 billion in the upstream as BP invests in its pipeline of
major projects and increases its exploration spend. Around $4.5 billion is
expected to be invested in BP’s downstream businesses, slightly higher than
2011 as activity levels at the Whiting refinery upgrade ramp up.
During 2010 and 2011 BP received $19.7 billion in receipts from completed
divestments and has agreements in place but not yet completed for a further
$1.8 billion. As it continues to actively manage its worldwide portfolio of
business, focusing the company around a distinctive, high-quality upstream
portfolio and a world-class set of downstream businesses, BP plans to continue
this divestment programme to $38 billion by the end of 2013.
Exploration and
Production
Following October’s turning point, BP’s oil and gas production rose by over
five per cent or 170,000 barrels of oil equivalent a day (boed) from the third
to the fourth quarter of 2011. For the year, production averaged 3.45 million
boed, ahead of the expectation of 3.40 million boed that the company had set
for the year.
Dudley said he expects underlying production in 2012 to be broadly flat,
excluding TNK-BP. Reported production is expected to be lower than 2011, with
the actual outcome depending on divestments, OPEC quotas and the impact of oil
price on production sharing agreements. The impact of divestments is expected
to be around 120,000 boed in 2012 compared to 2011, depending on the timing of
transactions.
Six major upstream projects in higher unit operating cash margin areas - in
Angola, the Gulf of Mexico and the North Sea - are expected to come on stream
in 2012. Momentum will continue through 2013 and 2014 as BP plans to bring a
further nine projects into production. All of these projects are expected to
deliver an average unit cash margin by 2014 that is around twice that of BP’s
2011 upstream portfolio.
BP completed an extensive programme of 47 major turnarounds on its upstream
operations during 2011, investing in long-term reliability and safety. BP’s
focus on safety and operational risk will continue in 2012 with a programme of
around 37 planned turnarounds. Overall production outages are expected to be
lower in 2012.
Dudley said BP had had an unparalleled year for new access to exploration prospects
in 2011: “We believe this resulted in more new net acreage than accessed by
any of our peers in 2011. We now have a robust pipeline of opportunities with
exploration prospects that will generate new resources and projects well into
the next decade. We will see a continued ramp up of exploration over the next
two to three years.�� BP plans to drill 12 exploration wells during 2012,
up from six last year.
BP reported a reserves replacement ratio for 2011 of 103 per cent, excluding
acquisitions and divestments.
Refining and Marketing
BP’s Refining and Marketing segment reported a record underlying pre-tax
profit of $6.0 billion in 2011 and is on track to deliver by 2012 an annual
improvement of over $2 billion in underlying performance relative to 2009.
“We have seen a remarkable turnaround in our downstream businesses over the
past few years,�� said Dudley. “We
have a very strong set of businesses, with unique technologies, a focus on
improving margin capture and positions in growth markets. We expect the
downstream to be a material contributor to the cash flow growth we anticipate
over the next few years.�� The upgrade of the Whiting refinery, expected to come
on stream in the second half of 2013, is expected, depending on the environment,
to generate over $1 billion operating cash flow a year.
BP continues active portfolio management in the downstream and today announced
its intention to divest its bulk and bottled LPG marketing business. From this
quarter BP has split out the reporting of the results of its fuels, lubricants
and petrochemicals businesses to better demonstrate the quality of the
downstream portfolio and the contribution of these businesses to the Group.
TNK-BP
BP received $3.7 billion in dividends from TNK-BP in 2011. Since its formation
in 2003, TNK-BP has paid BP a total of around $19 billion in dividends compared
to BP’s initial investment of approximately $8 billion. TNK-BP has paid
around $160 billion in taxes, duties and levies since its formation. Legal
disputes have had minimal impact on the operational and financial performance
of the joint venture, and it has a strong portfolio of brownfield and
greenfield growth opportunities in Russia and a growing international presence.
Starting in 2012 TNK-BP, which is independently managed, will be reported as a
separate segment to reflect its size and distinctiveness.
Gulf of Mexico
In the Gulf of Mexico, there are now five deepwater rigs working on BP-operated
fields, under BP’s enhanced voluntary standards, and an appraisal well was
spudded on the Kaskida field in November 2011. By the end of 2012 BP expects an
additional three rigs to be working in the region, subject to regulatory
approval.
BP has committed $1 billion for the early restoration of natural resources following
the Deepwater Horizon accident in 2010, and in December 2011 the trustees
announced the first projects to receive funding through this process. By the
end of 2011 over $7.8 billion had been paid to meet claims and government
payments and a total of $15.1billion had been paid into the Trust fund,
including payments from settlement agreements with Anadarko, Weatherford and
MOEX. A $250 million payment from Cameron following settlement with BP during
the fourth quarter was paid into the fund in January 2012.
Dudley said the company is preparing for the start of the Limitation and
Liability Trial regarding the Deepwater Horizon accident which is due to begin
in New Orleans on February 27: “As I have said before, we are prepared to
settle if we can do so on fair and reasonable terms, but equally, if this is
not possible, we are preparing vigorously for trial.��
Concluding, Bob Dudley said: “BP is making choices - value over volume,
strategic assets over non-core, and new opportunities over mature assets. We
aim to build an ever stronger portfolio, upstream and downstream, generating
enough cash both to invest for the future and to reward those who invest in us.
We have made a strong start on our portfolio, we’re building the cash
generation and, with today’s announcement, we have begun to provide those
rewards.��
Notes to Editors:
- This press release contains
certain forward-looking statements with respect to the operations and
businesses of BP and certain of the plans and objectives of BP with
respect to these items. These statements generally, but not always, are
identified by the use of words such as "will", "expected
to", "is intended to", "projected" or similar
expressions. In particular, these include certain statements regarding:
expected financial momentum in 2013 and 2014; expected full-year 2012
organic capital expenditure and increased capital spend for the future,
including expected levels of investment in BP’s upstream and downstream
businesses; anticipated improvements and increases, and sources and timing
thereof, in pre-tax profit, operating cash flow and margins, including
generating around 50% more annually in operating cash flow by 2014 versus
2011 at US$100/bbl; expectations and plans for increased re-investment and
increased distributions to shareholders; divestment plans, including the
anticipated timing for completion of, receipt of final proceeds from the
disposition of certain BP assets and impact on production; the expected
increase in exploration activity; expectations for drilling and rig
activity generally and specifically in the Gulf of Mexico; the level of
underlying performance improvement in Refining and Marketing; the expected
levels of underlying and reported production in the first quarter of 2012
and full-year 2012; the timing and composition of major projects including
expected start up, completion, level of production and margins; the
expected level of production in 2012; the expected level of planned
turnarounds, and the level of production outages; the quarterly dividend
payment; the expected timing and level of appraisal activity; the timing
for completion of the Whiting refinery upgrade; the timing of the
Limitation and Liability Trial regarding the Deepwater Horizon oil spill;
the timing and quantum of contributions to and payments from the $20
billion Trust Fund; and BP’s plans to report TNK-BP as a separate
segment in BP’s financial accounts. By their nature, forward looking
statements involve risk and uncertainty because they relate to events and depend
on circumstances that will or may occur in the future and are outside the
control of BP. Actual results may differ materially from those expressed
in such statements, depending on a variety of factors, including the
factors such as: the timing of bringing new fields on stream; the timing
and successful completion of certain disposals; OPEC quota restrictions;
PSA effects; future levels of industry product supply; demand and pricing;
operational problems; general economic conditions; political stability and
economic growth in relevant areas of the world; changes in laws and
governmental regulations; actions by regulators; exchange rate
fluctuations; development and use of new technology; the success or
otherwise of partnering; the actions of competitors; natural disasters and
adverse weather conditions; changes in public expectations and other
changes to business conditions; wars and acts of terrorism or sabotage;
and other factors discussed under “Risk Factors�� in BP’s
Annual Report and Form 20-F (SEC File No. 1-06262) and under “Principal
risks and uncertainties�� in BP's Form 6-K for the period ended 30 June
2011, each as filed with the US Securities and Exchange Commission.
- This presentation also contains
financial information that is not presented in accordance with generally
accepted accounting principles (GAAP). A quantitative reconciliation of
this information to the most directly comparable financial measure
calculated and presented in accordance with GAAP can be found on our
website at www.bp.com.
- The operating cash flow
projection for 2014 set out above reflects our expectation that all
required payments into the $20 billion Trust Fund will have been completed
prior to 2014. The projection does not reflect any cash flows relating to
other liabilities, contingent liabilities, settlements or contingent
assets arising from the Deepwater Horizon oil spill which may or may not
arise at that time. As disclosed in the Stock Exchange Announcement, we
are not today able to reliably estimate the amount or timing of a number
of contingent liabilities.
- The reserves
replacement ratio referred to above is the extent to which production is
replaced by proved reserves additions. This ratio is expressed in oil
equivalent terms and includes changes resulting from revisions to previous
estimates, improved recovery and extensions and discoveries. For 2011, the
proved reserves replacement ratio excluding acquisitions and disposals was
103% for subsidiaries and equity accounted entities. Further details will
be provided in the BP Annual Report and Form 20-F 2011. The 2011 reserves
additions for TNK-BP, which is an equity accounted entity, include the
effect of moving from life-of-licence measurement to life-of-field
measurement, reflecting TNK-BP’s track record of successful licence
renewal. Excluding this effect, BP’s 2011 proved reserves replacement
ratio excluding acquisitions and disposals would have been 83% for
subsidiaries and equity accounted entities.