4Q11 profit nearly halves on year, despite higher output and strong capacity utilisation. R&M activities generate profit of US$5.5 billion in full-year 2011.

BP, the European oil and gas company, has reported replacement cost (RC) profit of US$7.606 billion for 4Q11 and US$23.9 billion for full-year 2011, compared with the US$4.614 billion and –US$4.914 billion seen for 4Q10 and full-year 2010, respectively.

The company’s refining and marketing activities (R&M) generated an RC profit (before interest and tax) of US$564 million in 4Q11, down from the US$964 million and US$1.439 billion seen in 4Q10 and 3Q11. This compares favourably with Shell’s R&M activities, which made a current cost of supplies (CCS) loss of US$244 million in 4Q11.

BP's latest financial results state: “The fourth quarter saw continued strong operations with our refinery utilisation remaining well above the industry average. Compared with the same period last year, our result benefited from an improved contribution from supply and trading relative to the fourth-quarter loss in 2010 and our ability to access WTI-priced crude grades in the US, although the differentials for these grades narrowed compared with the third-quarter highs. These factors were offset, however, by a reduced refining margin environment, lower petrochemicals margins and foreign exchange impacts.”

The company’s refining operations recorded a Solomon refining availability of 95.3% in 4Q11 and a 30,000bpd increase in throughput on year, but these positive effects were countered by a US$0.88/bbl drop in margins, with US activities experiencing a 40% QoQ decline and the impact of a tighter WTI-Brent spread. Total refinery throughput averaged 2.454mbpd in 4Q11, of which the US, Europe and other countries represented 55%, 32.2% and 12.7%, respectively.

On a full-year basis, BP’s R&M segment produced an RC profit (before interest and tax) of US$5.474 billion, down 1.5% from the US$5.555 billion seen in 2010.

“Strong refinery operations enabled us to capture the benefits available in 2011 from BP’s location advantage in accessing WTI-based crude grades. Compared with 2010, the result also benefited from a higher refining margin environment and a stronger supply and trading contribution. These benefits were partly offset by a significantly higher level of turnarounds in 2011 than 2010, negative impacts from increased relative sweet crude prices in Europe and Australia, and the weather-related power outages in the second quarter.”

The company expects the level of turnaround activity for its refineries in 2012 to be broadly similar to that seen in 2011 and anticipates that the marketing environment for fuels, lubricants and petrochemicals will remain subdued, “given the outlook for global demand”.

Total capital expenditure in R&M amounted to US$1.369 billion in 4Q11, relatively unchanged on year. The total spend for 2011 came in at US$4.13 billion, slightly up from the US$4.029 billion seen for 2010.

BP is looking to complete the sale of its Texas City refinery and the southern part of its US West Coast fuels value chain, including the Carson refinery this year. The company is also looking to sell its global LPG and tank filling business, but will retain its autogas business in Europe. It will also maintain LPG wholesale outlets to support its refinery operations. BP expects to complete the divestment by the end of 2013.

Petrochemical production fell from the 3.72Mt seen in 4Q10 to 3.58Mt in 4Q11, a drop of 3.8% and the segment’s RC profit (before interest and tax) fell to US$96 million in 4Q11, from the US$243 million seen in 4Q10. BP attributes this to “weakening market conditions as additional Asian capacity has come on stream at a time of weaker demand”.

Full-year petrochemical earnings amounted to US$1.121 billion, down 28.6% from the US$1.57 billion in 2010. “The full-year result benefited from the strength in aromatics margins and volumes in the first half of the year but this benefit was more than offset by weakening market conditions as the year progressed,” BP says.
 
BP reports that it received local government approval in 4Q11 to build a 1.3Mta PTA plant in Zhuhai, China and is now seeking final central government approval. It also signed a memorandum of understanding in November with IndianOil for the formation of a 50/50 joint venture which will invest in a 1Mta acetic acid plant in Gujarat with a planned start-up date of 2015.

R&M capital expenditure for 2012 is expected to total US$4.5 billion and BP management expects to complete the Whiting refinery modernisation project by 2H13. During a conference call to announce the results, Tufan Erginbilgic, chief operating officer in the global fuels and lubricants division, said the project is now over 50% complete, with all the main vessels in place, and all of the piping modules are on site.
 
According to a BP facility fact sheet, the Whiting refinery, located on the southwestern shore of Lake Michigan, USA, has a capacity of 405,000bpd. The modernisation programme will allow it to refine heavier, sourer crude and involves the installation of a new crude distillation unit, a 100,000bpd coker, “world-scale hydrotreating and sulphur recovery, and improvements in infrastructure”. It will increase the refinery’s capacity by around 15% or 40,000bpd.
 
Erginbilgic also said that a margin improvement programme is under way at the Gelsenkirchen refinery, near Dusseldorf, Germany, which is “designed to improve the refinery yield through reconfiguration of some of the high-value uplift units”. The refinery has a crude distillation capacity of 265,000bpd.
 
According to Iain Conn, chief executive of BP’s R&M segment, the company is on track to deliver a US$2 billion improvement in underlying profit over the 2009–2012 period, with a US$1.3 billion improvement seen in 2009–2011. This improvement occurred despite 2011 being a heavy turnaround year for the business.