Weeks after cutting 300 jobs in Aberdeen, the oil company’s boss, Bob Dudley, sent a memo to all its staff outlining the decision to hold salaries at last year’s levels because of the harsh trading environment.
BP is among major companies responding to the price fall, which has already led to Shell, Premier Oil and Norway’s Statoil taking steps to cut costs. Projects have been put on hold and contractors’ pay cut.
Performance-related bonuses were not included in Dudley’s memo to staff, which was sent in advance of the FTSE 100 company’s full-year results next week.
“The tougher external environment in 2015 means that our businesses and functions need to work … to take a number of measures in response to the harsh trading environment,” Dudley said, according to a memo reported by Reuters. “One of the measures we are taking across the group is a general freeze to base pay for 2015, with only a few exceptions for specific circumstances around the world.”
Dudley received $13.7m (£9.1m) in pay, annual bonuses, deferred bonuses and pension in 2013. His salary was increased by 2.8% to $1.8m, last year’s annual report shows.
The North Sea Brent crude benchmark is trading below $50 (£33.20) a barrel, its lowest level for more than five years, presenting challenges to oil producers that have based their business plans on the basis of much higher prices.
While policymakers such as the Bank of England governor, Mark Carney, have said lower oil prices should help the wider economy and fuel growth, the impact on the oil industry is starting to be felt.
Dudley told the BBC last week, when he was attending the Davos meeting of the World Economic Forum, that the oil price could stay low for two to three years.
“Companies like us, at BP, we’re going to need to rebase the company, based on no guarantees at all that the price will come back up,” he said last week. “We have go to plan on this [price] being down, and we don’t know exactly what level, but certainly a year, I think probably two and maybe three years.”
BP employs about 15,000 people in the UK and the jobs being lost in Aberdeen are connected to the North Sea, where industry experts have warned as many as 100 fields could be in danger.
George Osborne is to announce further tax cuts for the oil and gas industry in the budget in March to help cushion the blow to the sector.
BP, which announced at the end of last year that it was going to spend $1bn on job cuts caused by the slumping oil price, is already undergoing an overhaul prompted by the Gulf of Mexico disaster five years ago.
The cost of cleaning up the spill at its Deepwater Horizon oil rig after an explosion that claimed 11 lives is not complete as the company is still fighting the scale of the fine its faces. The US government wants a $13.7bn fine but BP, which says it has accumulated $42bn of costs, is involved in an ongoing court case in New Orleans to try to reduce the penalty.
BP, which has spent £3.8m over a 17-year period sponsoring the Tate, according to data published on Monday, is one of several major oil companies expected to need to take steps to cut costs in the wake of the falling oil price.
Analysts at Liberum said they expected BP to cut its capital expenditure. “The 2014 oil-price downturn has raised concerns about cash generation and group-wide simplification/downsizing are set to continue,” they said.
They also noted that BP has a 19.75% stake in Russian oil company Rosneft, which is being affected not only by the falling oil price but also by the plunge in the rouble.
In its last update to the City in October, BP was already feeling the effect of the situation in Russia, with profits dragged down by the fall in the Russian currency. The business is also being hurt by sanctions imposed on Russia because of its intervention in Ukraine.
More about:
