News Column

UPDATE: BP Warns On Rosneft Sanctions As Quarterly Profit Rises

July 29, 2014

Tom McIvor

LONDON (Alliance News) - BP PLC Tuesday warned that further sanctions against Russian partner Rosneft OAO could 'adversely impact' the company, as the oil and gas major reported higher profit in its second quarter but a decline in profit for all of the first half.

The oil and gas giant said its first half pretax profit more than halved to USD11.14 billion for the six months ended June 30 from USD24.62 billion in the previous year as revenues and other income fell 7.0% to USD188,82 billion from USD202.92 billion.

The company said revenues fell as production dropped 7.3% to 2,118 million barrels of oil equivalent per day, leading to a downstream drop in revenues to USD171.17 billion from USD175.13 billion.

BP said the majority of its comparative decline in profit came from much lower disposal gains. In the first half of 2014, the company posted disposal gains of USD379 million, but in the same period the previous year, the company disposed of USD12.78 billion worth of assets.

In October 2013, BP announced plans to divest another USD10 billion in assets before the end of 2015, having completed a USD38 billion divestment programme in 2012. As part of the new plan, BP has so far agreed around USD3.4 billion in further divestments.

Meanwhile, the company said it could be hit by ongoing sanctions against Russia as part of the Ukraine crisis, since amongst those hit by the sanctions already announced earlier this year is Igor Sechin, chief executive of Rosneft OAO.

EU ambassadors in Brussels have begun a meeting on Tuesday to discuss fresh sanctions against Russia, which are widely expected to include restrictions on Russian banks accessing European markets, an arms embargo and curbs on dealings with the energy sector, according to media reports.

A German government spokeswoman, quoted by Associated Press on Monday, said the country was pressing for a "substantial, sector-specific package of measures" against Russia.

BP has a 19.75% holding in Rosneft, the world's largest extractor of natural gas, and said on Tuesday that further sanctions 'could adversely impact' its business and strategic objectives in Russia.

However, a spokesman for BP said in April that the company is "committed to our investment in Rosneft, and we intend to remain a successful, long term investor in Russia...We will of course comply with all relevant sanctions."

On Tuesday, BP said the sanctions so far have had no material adverse impact on the company but it will continue to keep the situation under review.

In its second quarter figures, the company made a 22% pretax profit gain to USD5.50 billion from USD4.49 billion in the same period the previous year despite a slight fall in revenues.

BP said its second quarter saw lower purchase costs, production and manufacturing expenses, exploration expenses and administrative expenses.

"This was another successful quarter, delivering both operational progress and robust cash flow. We are continuing to ramp up the major new projects that drive delivery of cash flow and are also now seeing benefits from our focus on operating with greater reliability and efficiency," Bob Dudley, BP chief executive, said in a statement.

"This operational momentum keeps us well on track to meet our 2014 targets and underpins our longer-term commitment to grow distributions to our shareholders," Dudley added.

As such, the company paid out a quarterly dividend of 9.75 cents, which is an 8.3% increase on the previous year's quarter but the same as its first quarter.

During the second quarter, BP increased its provision for litigation related to the Gulf of Mexico oil spill by USD260 million, which means the total cumulative pre-tax charge for the incident to date is now USD43.0 billion.

Looking ahead, BP said it expects the third quarter to continue its trend of lower production than the previous quarter due to planned major turnaround and seasonal maintenance activities in Alaska and the Gulf of Mexico.

In its upstream fuels business, the company expects stronger margins in the third quarter compared to the second but sees challenges continuing at its upstream petrochemicals business.

The news comes after the company announced in February that its pretax profit fell in its fourth quarter but increased significantly in the full year 2013.

BP said total revenues were up 2.1% in 2013 to USD396.22 billion from USD388.07 billion due to strong growth in underlying oil and gas production, particularly from key regions such as the North Sea, Angola and Gulf of Mexico.

BP announced in April that it intends to halt refinery operations at its major Bulwer Island refinery in Brisbane, Australia by mid-2015, as the Australian operations of major commodities players continue to struggle. It also announced in April, plans to sell interests in four BP-operated oilfields on the North Slope of Alaska to Hilcorp, a privately-held independent oil and natural gas exploration and production company.

BP shares were down 0.8% to 493.00 pence, putting it amongst the top ten FTSE 100 fallers on Tuesday.

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Source: Alliance News

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