BP makes record loss and axes 7,000 jobs

BP is to axe another 7,000 jobs after reporting an annual loss of $6.5bn (£4.5bn), the worst in its history.

Shares in the oil company dived 8.6% to 335p by the end of trading on Tuesday, wiping almost £6bn off the stock market value of the business, and helped drag down the wider FTSE 100 index of leading shares in London.

The poor financial performance of BP, followed by a 68% fall in quarterly profits from rival Exxon Mobil in the US and further weakness in the price of crude, depressed stock markets on both sides of the Atlantic on Tuesday. The FTSE 100 finished the day down 2.2% at 5922.01 points, while in New York, the Dow Jones fell more than 230 points, or 1.4%, in early trading.

Connor Campbell, a financial analyst at Spreadex, a betting company that follows the stock market, said: “The resumption of Brent crude’s decline has been the main catalyst for the day’s dismal trading. And, as ever, when the commodities begin to fall, the FTSE loses its way in pretty dramatic fashion.”

Bob Dudley, BP’s chief executive, said investors who were selling their oil company shares were overreacting and had overlooked BP’s strong cash flow.

Dudley blamed the annual loss, plus a fourth-quarter deficit of $2.2bn, on the collapse in oil prices, coupled with the continuing fallout from paying off liabilities for the Deepwater Horizon disaster in the Gulf of Mexico.

“We’re making good progress in managing and lowering our costs and capital spending while maintaining safe and reliable operations and continuing disciplined investment into the future of our portfolio,” he said.

BP expects the oil price to remain depressed for most of this year, but is confident that it will begin to recover from a current level of about $33 a barrel in the third and fourth quarters of 2016 and move to $50-$60.

In the meantime, the company plans to divest up to $8bn of assets over the next two years and cut 4,000 jobs from its exploration arm and 3,000 from “downstream” refining. Many of the exploration posts will be in Houston, but some could also be in Aberdeen.

Dudley said BP would continue to invest in the North Sea on projects such as the £4.5bn Clair Ridge, and praised action taken by the British government to pump money into Aberdeen and reduce offshore taxes.

He ruled out any chance of BP moving its London headquarters in the event of the UK leaving the European Union following the referendum. But Dudley added: “I think it’s good for Britain to be part of the EU.”BP said it has set aside a further $440m over the past three months for liabilities associated with Deepwater Horizon, bringing the total bill so far to $55bn.

The underlying profit for the last three months, not counting the Gulf and other factors, was down from $2.2bn last time to $196m, much worse than analysts had expected.

A consensus among 17 analysts ahead of the results predicted that underlying profits would fall in the final three months to $730m, down almost 70% on the same period a year earlier.

The biggest problem for BP has come from low crude prices, with Brent averaging $44 a barrel across the fourth quarter, compared with $77 for the same period 12 months earlier.

Fadel Gheit, an oil analyst at Oppenheimer & Co in New York, said the loss was BP’s worst performance, but the headline figure of $6.5bn obscured the fact that the company was doing quite well in a most difficult environment.

“No one is making money [in the key North American market] at $30 per barrel [of] oil and every oil company is taking as many writedowns as they can. These are largely paper losses and it’s an absolute overreaction to mark down BP shares by 9%,” he said.

BP insisted that its dividend was safe for the time being, but warned that it could still wrack up even more losses in future – at a relatively low level – from Deepwater Horizon.

Dudley said BP was constantly looking at new markets, including Iran, but was equally interested in places such as Mexico and Brazil.

The company had no interest in taking a larger stake in Rosneft or any new holding in Saudi Aramco should opportunities open up from possible privatisations by the cash-strapped governments of Russia and Saudi Arabia, he added.