Oil giant BP announced its first annual loss for nearly two decades yesterday, dragged down by a whopping US$41 billion ($54 billion) charge to pay for the Gulf of Mexico disaster last year which unleashed the worst offshore oil spill in history.
Despite fourth-quarter profits of US$4.4 billion, the company recorded an annual loss of US$4.6 billion, compared with profits of US$14 billion in 2009.
But BP was keen to stress its confidence in its financial future, reporting underlying earnings of US$20.5 billion and reinstating the dividend at 7c per share, about half its level before it was axed to help meet the slick clean-up costs. The company also announced plans to sell two US refineries.
But of greater significance was the vision of the future set out by the newly installed chief executive, Bob Dudley.
BP faced nothing short of an existential crisis in the aftermath of the Deepwater Horizon explosion last April, which left 11 people dead, vast swathes of US coastal waters polluted, and the company’s reputation in ruins. BP stock dropped to well below half its pre-spill value.
Dudley’s predecessor, Tony Hayward, was forced out of his job after a series of PR gaffes left him as public enemy number one in America. And there were questions about whether BP had a future in the Gulf of Mexico at all, let alone other environmentally sensitive regions such as Alaska or the Canadian tar sands.
When Dudley took over in October, the priority was to improve the company’s safety procedures. And there is every suggestion that Mark Bly, the man appointed to lead the charge, is making progress. The company has suspended operations at several rigs around the world in recent months in response to newly stringent safety rules.
But there were also longer-term questions about the future of the company. Dudley laid out unequivocal answers yesterday. BP will stick to its core strength: exploring and drilling for oil. The company is to double its exploration investment in the coming years, focusing on either giant or technically challenging fields and selling out of areas which no longer fit the more focused portfolio profile. Of crucial importance will be partnership arrangements with national oil companies.
Notwithstanding the row that has blown up with BP’s Russian joint venture TNK-BP, the US$10 billion share-swap deal with Rosneft to explore the Arctic’s Kara Sea is the first of many.
Dudley was clear yesterday that the company would not be cowed by the Deepwater Horizon tragedy, but must put it to use. He was also unforgiving in his analysis of what options are available to international oil majors in a world where just 9 per cent of reserves are outside the grip of national companies, compared with 90 per cent 30 years ago. “The role of an international oil company like BP is the technology and know-how at the more difficult ends of the spectrum, working with the national oil companies. If it cannot do that, it probably doesn’t have a future.”
Hence Dudley’s plans for BP. The company remains committed to its renewables portfolio, and to refinery assets it is keen to expand in fast-growing Asian economies such as China and India.
But the upstream division is the core of the smaller, more flexible BP that will emerge from the US$30 billion divestment programme set in train to raise money to pay for the Gulf of Mexico spill. The company made final investment decisions on 15 projects last year, including several in the North Sea, Angola and Azerbaijan.
Unsurprisingly, Dudley gave no ground on the issue of blame for the Gulf of Mexico spill yesterday. He stressed again that BP was not grossly negligent, and also that it expects to recover at least “a portion” of the costs from its partners in the Deepwater Horizon rig. He admitted that although the company has sent out US$6 billion in bills so far, none has yet been paid.