He said in response to some questions by Santander analyst Jason Kenney: “Well, first some sense of cash cost per barrel for us. If you look at the first quarter of 2012 and the first quarter of 2013, they’re almost identical. They were US$13.96 a year ago in the quarter. They’re US$13.91 now. They’ve come down in the – from the fourth to the first quarter – from over US$16 back to the US$13.80 number.”
The BP executive team were upbeat during the conference call after exceeding analysts’ estimates for first quarter 2013 profit by as much as US$1 billion. “First quarter underlying replacement cost profit was US$4.2 billion, down 9 per cent on the same period a year ago, but 9 per cent higher than the fourth quarter of 2012.
“Compared to a year ago, the result reflected the absence of any contribution from Russia prior to completion of the RosNeft transactions on March 21 as TNK-BP was treated as an asset held for sale,” Dudley told investors in his first words on the call.
BP divested its 50 per cent in TNK-BP, a Russian joint venture, to RosNeft, in the words of Brian Gilvary, chief financial officer of BP, “for a total consideration of US$27.5 billion in cash and RosNeft shares.”
After the deal, Rosneft has become the largest producer of oil in the world. With 28 billion barrels of oil reserves, Rosneft has now the capacity to produce 200 million barrels of crude oil per day.
Gilvary said as a result of the March 21 transaction, the gain on disposal was US$15.5 billion, of which US$12.5 billion was recognised and reported as a non-operating item in the first quarter with a balance of US$3 billion deferred and released to the income statement over time.
“This is required by accounting rules, as we effectively retain circa 20 per cent of TNK-BP through our ownership of RosNeft shares. Net cash received from the transaction was US$12.5 billion, including the US$700 million TNK-BP dividend received in the fourth quarter of 2012,” Gilvary said.
High about RosNeft
Dudley was equally upbeat about RosNeft.
He said: “I am very happy to have been also nominated to join the RosNeft board, which I hope to do towards the middle of the year, as the first of the two board seats BP will take up.”
He told investors: “it is worth reflecting for a moment on BP’s position in Russia following these transactions. Russia is the world’s largest producer of oil and gas combined. It also has the largest reserves of oil and gas combined, and RosNeft is now the world’s largest listed oil company in terms of production. BP holds 19.75 per cent of RosNeft. It gives us a major stake in a company which possesses great scale in a country with huge potential.”
He also said: “it enhances our own scale in reach. It means BP’s production, as a group, is now over three million barrels of oil equivalent per day, and our proved reserves are over 17 billion barrels of oil equivalent. As with TNK-BP, you should also expect to see a significant contribution to BP’s earnings.
“This transaction creates a unique position for BP. The deal provides us not only with a near 20 per cent share in all that RosNeft undertakes, but a close relationship that allows us to actively discuss opportunities where BP and RosNeft may be able to work together outside of the shareholding.”
The first quarter of 2013 was good for BP as it included a full three months of production from BP’s Skarv North Sea field and from its Angola PSVM facility, which both started producing at the end of last year. Lower unplanned downtime at refining plants lower costs also contributed to the earnings surprise. BP shares rose 2.5 per cent in London on the release of the first quarter results.
BP CFO: Wind farms a good business
BP investors also heard chief financial officer Gilvary refer to wind farms as “a good business,” although BP intends to wind down its own. Responding to a question by JP Morgan analyst Fred Lucas, who asked about the company’s plans to exit the wind farm business as it did from solar, Gilvary said: “Solar was a business that we announced the intention to wind down and exit in 2011. We’ve been in that business for 40 years. It’s a business that went through an enormous market change that made it very difficult to make money in that business, and that’s why we chose to exit it.