BP posts slump in Russian income, raises dividend

Oil major BP's third-quarter results took a hit from declining oil prices and a sharp drop in income from Russia as Western sanctions on Moscow led to a slump in earnings from its local partner, Kremlin-controlled Rosneft.

BP’s underlying replacement cost profit for the quarter was $3 billion, broadly in line with expectations of $2.948 billion, but down a fifth year-on-year, mostly due to declining oil prices.

Oil companies have seen billions wiped off their stock market values as crude prices dropped over the past four months by 25 per cent to a four-year low near $85 a barrel, due to slowing global demand particularly in China and ample supplies.

The impact of the falling oil prices was nevertheless limited as the third quarter finishes at the end of September.

"Growing underlying production of oil and gas and a good downstream performance generated strong cash flow in the third quarter, despite lower oil prices. This keeps us well on track to hit our targets for 2014," BP chief executive Bob Dudley said in a statement.

Dividends for the third quarter will rise by 5.3 per cent year-on-year to 10 cents per ordinary share. Organic capital expenditure for the full year will be trimmed to around $23 billion from previous guidance of $24 billion to $25 billion.

BP, a major investor in Russia through a 19.75 per cent stake in state oil major Rosneft, said the depreciation of the rouble against the dollar over the period had a significant impact on results.

It said its underlying net income from Rosneft for the quarter was $110 million compared with $808 million a year earlier.

However, the company said the latest round of sanctions imposed on Moscow in July “have had no material adverse impact on BP”.

The United States and the European Union hit Russia with several rounds of economic sanctions in recent months over Moscow's intervention in Ukraine. The latest sanctions hit long-term financing and joint projects with Western companies in the Arctic and shale developments.

Rosneft is expected to post a quarterly loss and on Tuesday delayed publication of its third-quarter results by one day, without giving an explanation.

Oil and gas production excluding Rosneft was down 2.7 per cent from a year earlier at 2.147 million barrels of oil equivalent, mainly due to the expiry of an exploration concession in Abu Dhabi. The decline was, however, offset by higher output from the Gulf of Mexico.

The third-quarter results included a $770 million writedown of Block KG D6, a gas field in India, “as a result of uncertainty in the future long-term gas price outlook” after India changed its gas pricing system.

BP said it expected fourth-quarter production to be “slightly lower.”

Profits from BP’s refining and retail business more than doubled in the third quarter to $1.5 billion due to stronger refining margins.

BP maintained its $3.5 billion liabilities provision for the 2010 Gulf of Mexico rig explosion and spill, even after a US judge last month found it “grossly negligent” and “reckless” in the disaster.

BP vowed to appeal the ruling, which could add nearly $18 billion in fines to more than $42 billion in charges the company took for the worst offshore environmental disaster in US history.

By the end of the third quarter, cumulative charges paid into the Deepwater Horizon Oil Spill Trust reached their allocated limit of $20 billion and any additional costs “will be charged to the income statement as they arise”.

Reuters