February 05, 2013 at 16:50 PM EST
BP No Longer Top Oil Producer
BP (LON: BP), once the biggest oil producer, has fallen from the top spot as production slowdowns and Deepwater Horizon trials continue...

This Article Originally was Published here: http://www.energyandcapital.com/articles/bp-no-longer-top-oil-producer/3056

BP (LON: BP) had a tough year in 2012 after negotiating deals and enduring court cases regarding the 2010 blowout of the Deepwater Horizon rig.

But things got even tougher when the company released its fourth-quarter earnings.

The report, released today, showed a decline of $1 billion in profit from last year's $5 billion. The company chalked the slowdown up to declining production levels and growing costs.

Output from all locations except Russia fell 7%, and the company has sold $38 billion in assets in order to pay for the spill, which so far has cost $42.2 billion. $4.5 billion settlement with the Justice Department over the 2010 spill and any additional costs.

But the nightmare from the spill is far from over. The company's recent $4.5 billion settlement with the Justice Department is included in the costs, but BP still has to face a civil trial. The next trial is expected to begin at the end of February.

As a result of the slip in production, BP suffered perhaps an even bigger fall. The company had been the largest crude oil producer since 2008, but this most recent report caused it to fall to number two, ceding the leading spot to Royal Dutch Shell Plc (LON: RDSA).

This fall is proof that the Deepwater Horizon disaster still has far-reaching effects on the company. Though BP plans to boost investments this year to $25 billion, it still will be facing additional costs from the nearly three-year-old mistake. The civil trial alone could cost upwards of $20 billion.

After the blowout, nearly all oil and gas activity in the Gulf of Mexico was halted temporarily as new regulations were put in place. This put a huge dent in BP's output, as it had heavy operations in the Gulf.

But this year, the company's Gulf operations continued to drop almost a third as it produced and average 185,000 barrels per day from the region, the Wall Street Journal reports.

The company attributed this in large part to its maintenance operations this year. BP performed heavy maintenance throughout 2012 to improve the safety of its equipment and set out a more reliable 2013.

Yet that might not carry all the way over to production. Brian Gilvary, BP's chief financial officer, talked to the New York Times:

“The impacts of the divestments will be increasingly evident as we move through 2013,” Mr. Gilvary said, adding that asset sales last year would reduce output by about 150,000 barrels per day this year.

The areas Gilvary that mentioned would be lacking in particular were the Gulf of Mexico and the North Sea. CEO Robert W. Dudley believes a production level of 2.2 million barrels per day would be a “low point” for the company, but BP is not far away right now with 2.3 million bpd.

Shell and Exxon Mobil (NYSE: XOM) produce 3.4 million bpd and 4.2 million bpd, respectively.

Meanwhile, the company's net profit dropped 72% from a year ago—dropping from $7.61 billion to $2.14 billion.

BP shares managed to close up 1.46% on Tuesday in London despite the poor earnings report. The company might still be facing setbacks in the year to come, but it has the potential and the resources to regain the strength it once had.

As Dudley said in a statement reported by MarketWatch:

“We have moved past many milestones in 2012, repositioning BP through divestments and bringing on new projects. This lays a solid foundation for growth into the long term.”

That's all for now,

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Brianna Panzica

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Energy & Capital's modern energy guru, Brianna digs deep into the industry with accurate and insightful updates into the biggest energy companies and events. She stays up to date with the latest market moves and industry finds, bringing readers a unique view of current energy trends. For more on Brianna, see her editor's page.

 

This Article Originally was Published here: http://www.energyandcapital.com/articles/bp-no-longer-top-oil-producer/3056



BP No Longer Top Oil Producer originally appeared in Energy and Capital. Energy and Capital, a free daily newsletter, offers practical investment analysis in the new energy economy.
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