The oil giant said its replacement cost profits – its profit based on the current cost of replacing supplies – fell by 24% in a ‘very disappointing’ fourth quarter. This meant full-year profits dropped to $17.29bn in 2007, 22% lower than the 2006 figure.
It’s all the more embarrassing for BP becomes it comes just a few days after rivals ExxonMobil and Shell reported the most profitable years in US and UK corporate history. With the price of crude oil hitting an all-time high of about $100 a barrel in recent months, it seems hard to believe that any oil company could end up making less money than last year.
However, after the year BP’s had, it’s not particularly surprising. The US Department of Justice fined it almost $400m for environmental crimes and fraud, while its long-serving chief executive Lord Browne quit after a perjury scandal. Since Tony Hayward stepped up to replace him, he’s been busy cutting jobs and overhauling the business – all at great expense.
The major culprit last quarter was BP’s refining arm, which actually recorded a loss of $1.34bn. Hayward was scathing about it today; performance was ‘very poor’, he said, due to ‘poor reliability in some of our US refineries… compounded by the complexity and overhead structure of the business segment’. Given that he’s already spent $1bn restructuring the business since taking over, he appears to have a fairly dim view of his predecessor’s organisational abilities.
There was some hopeful news for BP though. For the fourteenth year in a row, its replacement ratio was above 100% - which means it’s been able to replenish its reserves at a faster rate than it’s been pumping oil out of the ground. Six new projects (including sites in Oman, Libya and Canada) have added another 250,000 barrels a day to BP’s supply. Shell may have made a lot more money than BP last year, but its silence on this point last week has led to suggestions that it’s struggling to compete (though given its past history of over-stating reserves, perhaps dicretion is the better part of valour...)
The figures also contained a lot of one-off costs – for example, franchising its US petrol stations and restructuring the management team. So it’s possible that Hayward is trying to get as much of the bad news out of the way at once (at a time when he still won’t be blamed for it) to put the company on a strong footing for next year. And he’s also increased the dividend by a third to keep shareholders happy. So its share price didn’t take a hammering today.
But it’s still a dramatic fall from grace for one of UK plc’s best performers. Hayward can't keep blaming BP's problems on the old regime forever - before long he's going to have to start delivering results himself...