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BP's profit doubles, helps it resume buybacks

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BP's profit doubles, helps it resume buybacks

Production growth, lower operating costs and higher oil prices worked to more than double BP Plc's profit to $6.2 billion in 2017, helping the company to resume share buybacks as the industry rebounds from low oil prices since 2014.

The London-based oil and gas major bought back 51 million shares for $343 million in the fourth quarter 2017. After the slump in oil prices in 2014 and the 2010 oil spill at Deepwater Horizon in the Gulf of Mexico, BP was the first of its peers to end its scrip program and restart a share buyback program. BP's scrip dividend program was put in place in 2010 as an alternative to the cash dividend.

For the fourth quarter of 2017, BP's underlying profit was $2.1 billion, up from $1.87 million in the third quarter of 2017 and increasing from $400 million in the fourth quarter of 2016.

Including amounts related to the oil spill, BP's cash flow was $5.9 billion in the fourth quarter of 2017 and $18.9 billion for the full year, up from $2.4 billion and $10.7 billion, respectively, from 2016.

BP saw "one of the strongest years" in recent history, according to BP CEO Bob Dudley. "We delivered operationally and financially, with very strong earnings in the downstream, upstream production up 12%, and our finances rebalanced. We enter the second year of our five-year plan with real momentum, increasingly confident that we can continue to deliver growth across our business, improving cash flows and returns for shareholders out to 2021 and beyond."

BP's net profit attributable to shareholders was $27 million for the fourth quarter of 2017, down from $497 million in the prior quarter. For the full year 2017, BP posted a jump in attributable profit to $3.39 billion, up from $115 million in 2016. BP booked a $1.69 billion posttax charge to settle claims related to the oil spill and a $900 million deferred tax charge following the recent tax reform in the U.S.

Longer-term, with the new tax law lowering the corporate tax rate from 35% to 21%, BP plans to hike its investment in the United States. Dudley said over the last ten years, BP has invested more than $90 billion in the U.S., excluding $65 billion in costs related to its 2010 oil spill.

"There's no doubt we'll increase investments. The regulatory system in the United States is suddenly so much easier. It was becoming an avalanche of regulations in every direction. So from a business community standpoint, it's quite transformational. There will be a lot of capital attracted to the U.S.," Dudley said on a Feb. 6 earnings call.

Despite the recovery in oil prices, the company will retain a disciplined approach to its capital investment, with an expectation that oil prices could eventually decline by the end of this year to $50-$55 per barrel.

"So far this year, Brent's oil prices averaged almost $70 per barrel, up from an average of $54 in 2017, a year which was hard to believe the first average annual increase since 2012. The gradual decline in inventories over the past 6 months or so together with heightened geopolitical uncertainty, has driven prices up. But our expectation is that some of this recent strength could be short-lived and the prices will moderate over the medium term," Dudley said during the Feb. 6 earnings call.

For the full year 2017, BP's oil and natural gas production, excluding Rosneft, was 12% higher than in 2016, the highest level since 2010. In the fourth quarter 2017, the company's output was up 18.1% on the yearly period to 2.6 million barrels of oil equivalent per day, its highest level since the first quarter of 2011.

BP expects that reported production in the first quarter of this year will be largely flat to the last quarter of 2017, reflecting growth from new projects offset by the expiration of the Abu Dhabi offshore concession and divestment impacts. In 2018, the company's production is expected to maintain its upward trajectory amid additional field start-ups this year.

BP said Jan. 31 that it had made two new oil and gas discoveries in the North Sea. The size of the new discoveries was not disclosed with well data reportedly still undergoing evaluation. BP's North Sea operations are expected to double output to 200,000 barrels per day by 2020 and ongoing production beyond 2050. With seven field startups in 2017 and five scheduled in 2018, BP plans to expand production by 800,000 barrels per day by 2020, of which most will be gas.

BP's shares closed down 1.46% at 475.00 pence on the London Stock Exchange, on a day when the FTSE 100 declined 2.64%. At 1:00 p.m. ET on Feb. 6, BP stock on the NYSE was valued at $40.10 per share, up 29 cents or 0.73%, on the day.