BP. Bp Plc

By Sarah Kent 

LONDON--BP PLC's earnings collapsed in 2015, the company said Tuesday, amounting to a full-year loss of $5.2 billion that illustrates the toll a 20-month slide in oil prices is taking on the world's energy industry.

The U.K. oil titan said it would have to cut another 3,000 jobs by the end of 2017 in another move to slash costs to respond to oil prices that averaged just $44 a barrel in the last three months of 2015. For the fourth quarter alone, BP said it posted a replacement-cost loss--a number analogous to the net income that U.S. oil companies report--of $2.2 billion.

BP's results come after Chevron Corp. said last week it would slash its spending by $9 billion and lay off 4,000 workers in 2016 after reporting a surprise fourth-quarter loss of more than half a billion dollars. Exxon Mobil Corp. said Tuesday that its earnings tumbled 58% in the fourth quarter to their lowest level since 2002. Royal Dutch Shell PLC is also expected to report sharply lower profits this week, after indicating last month that its adjusted earnings fell 50% in 2015.

The pressure remains on the oil sector as the glut in supply that has caused the downturn in oil prices shows no sign of letting up. Prices have continued to tumble in the first two months of 2016, falling to $27 a barrel in January and trading around $33 a barrel on Tuesday. That is down from their peak of $114 a barrel in June 2014.

Analysts and banks lowered their price outlooks for 2016 to $50 a barrel, down from $57 a barrel, and ratings firms say their outlook for the sector is negative. Standard & Poor's downgraded Shell on Monday and said it would review its status again once its roughly $50 billion acquisition of smaller rival BG Group PLC completes. The ratings agency also placed BP and a number of its peers on credit watch, suggesting a downgrade could follow soon.

Despite the current market turmoil, BP's management struck an optimistic note Tuesday, with CEO Bob Dudley replacing his mantra of 2015--that oil prices would be "lower for longer"--with the view that prices won't "be lower forever."

That didn't soften the blow to the company in the fourth quarter, which suffered a significant loss at its exploration and production unit, and impairment and restructuring charges amounting to $2.6 billion. Its full-year loss of $5.2 billion is comparable to the mammoth hit BP took in 2010 following its blowout in the Gulf of Mexico.

BP's performance was much worse than analysts' already dismal expectations. A poll of six analysts by Dow Jones Newswires suggested the company would report a 60% slide in underlying profit in the fourth quarter. It tanked more than 90%, prompting a 9% selloff in BP's shares.

Mr. Dudley said he was "surprised by the reaction" to BP's results, which he said were largely down to exploration write-offs. "We're moving quite fast down the path to reset the company," Mr. Dudley said at a news conference. Still, he added, "2016 is going to be tough."

In January, BP announced plans to cut its exploration-and-production staff by 4,000 this year. It added to this number on Tuesday, highlighting its intention to reduce the head count in its refining and marketing arm by 3,000 by the end of 2017. The company has outlined plans to manage spending so that it can cover exploration-and-production costs and shareholder payouts with cash by 2017 with oil at $60 a barrel, though that is still nearly double the current price.

BP's downstream division remained profitable in the fourth quarter, but its performance was significantly weaker than earlier in the year, hurt by the performance in its trading business. For the year, the company reported a record result in its downstream division as profits before interest and tax nearly doubled to $7.1 billion.

Chief Financial Officer Brian Gilvary said the company's strategy for this year was based on an oil price below $50 a barrel, but supply and demand is expected to begin to rebalance in the second half of the year.

BP already brought down costs by $3.4 billion in 2015 and expects them to be $7 billion lower by 2017. Capital spending over the next two years is expected to stay between $17 billion and $19 billion and it plans to sell off $3 billion to $5 billion worth of assets this year.

The company's dividend, though, remains untouched at 10 cents a share, reflecting big oil companies' continued commitment to shareholder payouts--a measure they regard as practically sacrosanct--despite the difficult environment.

"Provided we remain confident we can get everything back in balance, i.e. the cash we generate will cover capital expenditure and dividends by 2017, then the dividend remains sustainable," Mr. Gilvary said, though he acknowledged that calculation could come under pressure if the company's view of the market changes.

BP also took a charge of $443 million in the fourth quarter relating to its 2010 blowout in the Gulf of Mexico. Though the company's move to finalize the terms of a $20.8 billion settlement with the U.S. government last year has given it some certainty over the size of its liabilities, it will likely be decades before it has fully shaken the incident. So far, the company has paid out $55.5 billion before taxes in relation to the spill.

Write to Sarah Kent at sarah.kent@wsj.com

(END) Dow Jones Newswires

February 02, 2016 10:17 ET (15:17 GMT)

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