BP reported a profit for the third quarter of 2016 of $933 million

The quarter’s result was affected by a weaker price and margin environment. It was also negatively impacted by a number of mainly one-off and non-cash items in the Upstream. However, the result also included benefits from lower cash costs being incurred throughout the Group and a positive one-time tax credit. 

Underlying operating cash flow², which excludes pre-tax Gulf of Mexico payments, was $4.8 billion for the quarter. It was $13.3 billion for the first nine months of the year, benefitting from reliable operations and lower cash costs.

BP announced an unchanged dividend for the quarter of 10c per ordinary share, expected to be paid in December.

Brian Gilvary, BP’s Chief Financial Officer said: “We continue to make good progress in adapting to the challenging price and margin environment. We remain on track to rebalance organic cash flows next year at $50 to $55 a barrel, underpinned by continued strong operating reliability and momentum in resetting costs and capital spending.³

“At the same time we are investing in the projects, businesses and options to deliver growth in the years ahead.”

BP’s cash costs⁴ over the past four quarters were $6.1 billion lower than in 2014, continuing the Group’s progress towards 2017 cash costs being $7 billion lower than in 2014. BP’s expectation for 2016 organic capital expenditure was reduced again and it is now expected to total around $16 billion, compared to original guidance of $17-19 billion given at the start of the year. BP expects capital expenditure in 2017 to be between $15 billion and $17 billion.

Cash divestment proceeds for the year to date, including the partial sale of BP’s shareholding in Castrol India, are now $2.7 billion. At the end of the third quarter, BP’s gearing level was 25.9%, within the targeted 20-30% range.

The Brent oil price averaged $46 a barrel in the quarter, compared with $50 a barrel in 3Q 2015, and gas prices outside the US were also weaker. Refining margins were steeply down from a year earlier, depressed by high product stock levels.

BP reported an overall headline profit for the quarter of $1.6 billion, which includes a net gain of $728 million for non-operating items and fair value accounting effects. This is comparable to a profit of $46 million a year earlier and a loss of $1.4 billion in the second quarter of this year, when significant charges associated with the Gulf of Mexico oil spill were taken.

Segment results

Both of BP’s main operating segments continued to demonstrate strong operational performance, with Upstream plant reliability at 95% and refining availability in Downstream at 95.4% in the first three quarters of the year.

BP’s Downstream segment delivered resilient results despite refining margins weaker than both the previous quarter and, particularly, a year earlier. Underlying pre-tax replacement cost profit was $1.4 billion, compared with $1.5 billion for 2Q 2016 and $2.3 billion for 3Q 2015. Compared with a year earlier, the impact of the lower refining margin environment was partially offset by an increased retail performance and cost reductions across the segment.

BP’s Upstream segment reported an underlying pre-tax replacement cost loss of $224 million, compared with profits of $29 million for 2Q 2016 and $823 million for 3Q 2015. Compared with a year earlier, the result reflected weaker oil and non-US gas prices and lower gas marketing and trading results, together with the impact of higher exploration write-offs and rig cancellation charges. The impacts of these were partially offset by benefits of cost reduction programmes in the Upstream.

BP estimated its share of Rosneft net income for the third quarter to be $120 million⁵, compared with $246 million for 2Q 2016 and $382 million for 3Q 2015. In July BP received a dividend of $332 million, representing 35% of BP’s share of Rosneft’s 2015 IFRS net income.

Strategic developments

In the Upstream, BP announced an agreement for a second production sharing agreement with CNPC for shale gas in China and also amendment of a number of concessions in Egypt that enabled the fast-track development of the Nooros field.

In September, BP and Det Norske completed the formation of their Norwegian joint venture. On completion of the sale of BP Norge, BP received a 30% equity interest in Aker BP.

The In Amenas Compression project in Algeria is on schedule to commence operation in the fourth quarter, which would make it the fifth Upstream major project to start this year.

In October, BP announced its decision not to continue its exploration programme in the Great Australian Bight, off the south coast of Australia.

In the Downstream, BP continues to see marketing growth with retail volumes increasing by 3% in the year to date and two new convenience partnerships in Europe. 

Cautionary statement

In order to utilize the ‘safe harbor’ provisions of the United States Private Securities Litigation Reform Act of 1995 (the ‘PSLRA’), BP is providing the following cautionary statement. This press release contains certain forecasts, projections and forward-looking statements – that is, statements related to future, not past events – with respect to the financial conditions, results of 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, among other statements, certain statements regarding the expected quarterly dividend payment and timing of such payment; plans and expectations regarding BP’s goal of balancing organic cash flows by 2017 at $50–55/bbl; BP’s share of Rosneft’s net income; plans and expectations regarding continued reductions in cash costs through 2017; plans and expectations regarding BP’s annual organic capital expenditure in 2016 and 2017; and the scheduled commencement of operation of the Amenas Compression project in Algeria.