London — BP flagged further upstream growth potential this year after a raft of project start-ups and a key US shale deal last year helped lift its oil and gas output by 2% in the final quarter of 2018.
Receive daily email alerts, subscriber notes & personalize your experience.Register Now
BP's upstream production for the fourth quarter was 2.63 million boe/d, 1.8% higher than a year earlier, following the start-ups of the Clair Ridge field in the UK and projects in Egypt, Russia, Azerbaijan, the Gulf of Mexico and Australia.
Europe's second-biggest oil major also completed its $10.5 billion acquisition of BHP's US shale assets in the quarter, adding 190,000 boe/d of new oil and gas production in the liquids-rich Permian Basin and Eagle Ford Shale plays.
Reporting fourth quarter and full year earnings Tuesday, BP said upstream production in 2018, excluding its 20% stake in Rosneft, was 2.54 million boe/d, 3% higher than 2017 and the highest since 2010. Including its stake in Rosneft, BP's reported oil and gas output averaged 3.7 million boe/d in 2018.
Underlying volume growth will continue this year, BP's upstream head Bernard Looney said, cautioning that planned asset sales during 2019 will likely see its reported oil and gas output remain little changed on 2018.
He said BP remains on track, however, to deliver 900,000 b/d of oil equivalent in new production by 2021 compared with 2015.
BP expects its reported production in the first quarter of 2019 to be flat on the fourth quarter of 2018, reflecting divestments of upstream assets in the North Sea and Alaska, and maintenance mainly in the Gulf of Mexico, offset by project start-ups and the benefit of the BHP assets in the US.
Downstream, BP reported strong performance, with record earnings in the fourth quarter, after its refining availability for the year averaged 95% and saw record refining throughput. During the quarter, BP saw lower industry refining margins offset by stronger fuels marketing earnings.
BP's average refining marker margin slipped to $11/b in the quarter, down from $14.4/b a year earlier. Looking ahead, BP said it expects "significantly lower" industry refining margins and narrower North American heavy crude oil discounts during the first quarter of 2019.
Overall, BP reported an underlying replacement cost profit, which excludes one-time charges, of $3.48 billion for the fourth quarter, up from $2.11 billion a year before. The adjusted result was 32% above the consensus estimates of $2.63 million and BP's shares jumped 4% in early London trading.
London Oil & Energy Forum | London Hilton | February 25, 2019
Join our respected editors and analysts as they share insights on the latest oil and energy industry developments, market outlooks and in-depth analysis of major trends.Register now
"Operating cash flow excluding working capital change was up 33% for the full year and 17% higher than last quarter, including a positive contribution from our new US assets," CFO Brian Gilvary said. BP said it intends to complete more than $10 billion of divestments over the next two years, which includes plans announced following the BHP transaction.
BP has said it plans to sell off some of its legacy US gas assets as part of the divestment plans to help bring down its gearing, or debt to equity ratio. BP's gearing rose to 30.35% at the end of 2018 from 27.4% a year earlier.
Total divestment and other proceeds for 2018 were $3.5 billion, compared with $4.3 billion in 2017. BP's organic capital expenditure for the full year was $15.1 billion, within its guidance range of $15-16 billion.
BP said it expects 2019 organic capital expenditure to be in the range of $15-17 billion.
On reserves, BP said it fully replaced its production with proven reserves last year with organic reserves replacement ratio, or RRR, including Rosneft, of 100%. Including acquisitions and disposals, RRR was 209%, primarily reflecting the BHP asset acquisition in the US.
-- Robert Perkins, firstname.lastname@example.org
-- Edited by James Burgess, email@example.com