BP slumped to its biggest annual loss last year and announced thousands more job cuts on Tuesday.
BP said it lost $6.5bn in 2015 and its Q4 2015 underlying replacement cost profit, which is the company’s definition of net income, came in at $196mn, well below analyst expectations of $730mn.
The British oil and gas company, which is still grappling with about $55bn of costs from the oil spill in the Gulf of Mexico in 2010, said it would cut 7,000 jobs by the end of 2017, or nearly 9% of its workforce.
The company’s 2015 loss shows that even its ‘shrink to grow’ strategy adopted after the Macondo rig explosion in 2010, hailed as the best preparation for a weak oil market, was unable to buffer the impact of the lowest oil prices since 2003.
“Should low oil prices prevail, they’re a quarter or two away from having to cut the dividend, or divest some more assets,” Jack Allardyce, analyst at Cenkos Securities, told Reuters.
BP’s results are the latest to show the extent large oil companies are struggling following a 70% slide in oil prices since the middle of 2014 that has forced them to cut tens of thousands of jobs and slash spending.
BP’s 2015 annual loss was bigger than the overall loss of $4.9bn it reported in 2010, even though it took a $17.2bn hit in the second quarter of that year after the explosion in the Gulf of Mexico.
BP’s poor results came a day after credit ratings agency Standard and Poor’s placed the company on the path toward a credit downgrade.
BP took a bigger-than-expected hit at its upstream oil and gas production business and booked charges of $2.6bn in the fourth quarter because of low oil prices, including on fields in the Gulf of Mexico, the US Utica shale acreage in Ohio state and Libya.
Analysts at Bernstein told Reuters that warmer than expected weather in 2015 probably meant that BP took a hit from some of its oil and gas hedging positions.
BP said if the current downturn in the oil and gas market persists for longer than anticipated, it would be able to reduce its costs further to allow its balance sheet to break even below $60 a barrel.
“Should current conditions persist for longer than anticipated, we expect that all the actions we are taking will capture more deflation,” chief financial officer Brian Gilvary said in a statement.
BP said its capital spending came to $18.7bn in 2015, down from a planned $24-$26bn, and it expected 2016 spending to be at the lower end of a $17-19bn range.
BP reduced operating costs by $3.5bn last year and said it expected savings to reach $7bn by 2017.
It plans to cut 3,000 jobs in its downstream division by the end of 2017, on top of 4,000 cuts in its oil and gas production business announced last year.
“We are continuing to move rapidly to adapt and rebalance BP for the changing environment,” chief executive officer Bob Dudley said in a statement.
Despite lower revenue from oil production, BP’s output rose 5.4% to 2.26mn barrels of oil equivalent per day.
Its refining and trading operations, benefiting from cheap fuel prices, once again offset losses in oil and gas production, although BP indicated that supply and trading weakened over Q4 2015 compared to a year earlier.
Like many of its peers, BP has tapped the debt market to plug the gap in income to cover spending and dividend payouts. BP said it intends to maintain its debt at current levels.
Its debt-to-equity ratio stood at 21.6% at the end of 2015.
