BP's fourth quarter replacement cost profit was $3,895 million, compared with $4,432 million a year ago, a decrease of 12%. For the year, replacement cost profit was $22,253 million compared with $19,314 million, up 15%.
The fourth quarter result included a net non-operating charge of $152 million compared with a net nonoperating charge of $553 million in the fourth quarter of 2005. For the year, the net non-operating gain was $1,062 million compared with a net non-operating charge of $1,754 million for 2005.
Compared with a year ago, the fourth quarter trading environment reflected higher oil realizations, lower refining and retail marketing margins and lower gas realizations.
Net cash provided by operating activities for the quarter and year was $5.0 billion and $28.2 billion, respectively, compared with $4.2 billion and $26.7 billion a year ago.
The ratio of net debt to net debt plus equity was 20%.
The quarterly dividend, to be paid in March, is 10.325 cents per share ($0.6195 per ADS) compared with 9.375 cents per share a year ago. For the year, the dividend showed an increase of 10%. In sterling terms, the quarterly dividend is 5.258 pence per share, compared with 5.288 pence per share a year ago; for the year the increase was 6%. During the year, the company repurchased 1,334 million of its own shares, representing 6.5% of the end 2005 outstanding shares net of treasury shares, at a cost of $15.5 billion.
BP Group Chief Executive, Lord Browne, said: “The fourth quarter result reflects the recent declines in the overall price and margin environment, as well as operational factors and increased safety and integrity investments. Our record full year replacement cost profit and operating cash flow supported the group's capital programme and increased dividends and share buybacks. We remain committed to addressing the recent operational issues while executing our strategy with discipline and focus.”
Summary Quarterly Results
Exploration and Production’s fourth quarter result was impacted by significantly lower gas prices and realizations and lower reported volumes, partly offset by higher liquids realizations. In addition, it included higher costs, reflecting the impacts of sector specific inflation and increased integrity and revenue investment. Furthermore, BP’s share of income from equity-accounted entities was negatively affected by lower net income from TNK-BP, reflecting the adverse effect of lagged tax reference prices and the absence of the gain on sale of assets that occurred in the fourth quarter of 2005.
The Refining and Marketing result reflects a number of improvements on a year ago. These result from the progressive recommissioning of the Texas City refinery following the storm-related shutdown, together with the absence of storm-related disruptions to our pipelines and marketing businesses, the absence of rationalization costs and a lower adverse impact from IFRS fair value accounting. Additionally, the result reflects lower refining margins partially offset by stronger supply optimization benefits, and lower overall marketing margins.
In Gas, Power and Renewables the higher result reflects non-operating gains compared with a net non-operating charge in the same period last year, partly offset by lower contributions from the gas marketing and trading and NGL businesses and a lower benefit related to IFRS fair value accounting.
Finance costs and Other finance expense was $149 million for the quarter.
The consolidation adjustment, which removes the margin on sales between segments in respect of inventory at the period end, was a charge of $103 million. The effective tax rate on replacement cost profit of continuing operations was 25% versus 32% a year earlier reflecting the impact of a number of favorable items in the fourth quarter and the effect of year end prices on inventory holding gains and losses.
Capital expenditure and acquisitions was $5.4 billion for the quarter. Disposal proceeds were $0.8 billion. Net debt at the end of the quarter was $21.4 billion. The ratio of net debt to net debt plus equity was 20%. During the fourth quarter, the company repurchased 310 million of its own shares for cancellation, at a cost of $3.5 billion.
The commentaries above and following are based on replacement cost profit.
The financial information for 2005 has been restated to reflect the following, all with effect from 1 January 2006: (a) the transfer of three equity-accounted entities from Other businesses and corporate to Refining and Marketing following the sale of Innovene; (b) the transfer of certain mid-stream assets and activities from Refining and Marketing and Exploration and Production to Gas, Power and Renewables; (c) the transfer of Hydrogen for Transport activities from Gas, Power and Renewables to Refining and Marketing; and (d) the change in the basis of accounting for over-the-counter forward sale and purchase contracts for oil, natural gas, NGLs and power. See Note 2 for further details.
Outlook
BP Group Chief Executive, Lord Browne, concluded: “World economic growth has been sustained. US economic growth appears to have been resilient in the fourth quarter, and growth in Europe and Asia has been sustained. The near-term global outlook is for continued growth at close to current rates.
“Crude oil prices averaged $59.60 per barrel (Dated Brent) in the fourth quarter of 2006, $10 per barrel below the third quarter level but slightly above the same period last year. For the year, Dated Brent averaged $65.14 per barrel, a record in money-of-the-day terms and more than $10 per barrel above the 2005 average. Prices in the fourth quarter drifted higher after OPEC announced production cuts in late October, but retreated in late December in face of demand weakness and rising non-OPEC supply. Prices have declined further this year. Further OPEC production cuts have been announced.
“US natural gas prices averaged $6.56/mmbtu (Henry Hub first of month index) in the fourth quarter, nearly identical to the third quarter average but half the very high levels seen in the fourth quarter of 2005. Gas continued to trade near parity with residual fuel oil heading into the peak winter demand months. Gas in storage at year-end was 14% above the five year average in face of unusually warm weather. Prices may find temporary support for the remainder of the winter but high inventories are expected to continue to weigh on prices.
“UK gas prices (NBP day-ahead) in the fourth quarter averaged 29.92 pence per therm, 11% below the third quarter and less than half the level of a year ago. New infrastructure projects, high inventories and above-average temperatures contributed to the decline. These factors have eased concerns over winter supply availability, although the risk of temporary price spikes due to late-winter cold spells persists.
“The global average indicator refining margin fell to $6.30/bbl in the fourth quarter, down just over $2/bbl versus the third quarter and more than $1/bbl below the fourth quarter last year. Margins recovered well from mid-September lows despite a light US hurricane season and an extremely warm start to winter. So far in the first quarter, margins have averaged around $6/bbl, with the near-term outlook dependant on the weather and a relatively heavy US refinery turnaround programme.
“Retail Margins fell in October and November due to the increasing cost of product, before stabilising in December. Average retail margins therefore deteriorated in the fourth quarter relative to the third. The outlook for retail margins is expected to remain uncertain.
“Our strategy is unchanged. We continue to execute it with discipline and focus. Capital expenditure excluding acquisitions for the year was about $16.9 billion, in line with the guidance given with our third quarter results, including $1 billion in respect of our investment in Rosneft, and is expected to be around $18 billion in 2007. Production in 2007 is expected to be in the range of 3.8 to 3.9 mmboe/d.
"On the basis of a price assumption of $60 per barrel and our current portfolio, we expect production of more than 4.0 million barrels of oil equivalent per day by 2009, and more than 4.3 million barrels of oil equivalent per day by 2012.”
