Image courtesy of Maersk Oil/Facebook.

Maersk Oil fell to a $2 billion annual loss on Wednesday after taking over $2 billion in impairments tied to low oil prices.

Maersk Oil booked a full year 2015 loss from continuing operations of $2.14 billion, compared to a loss of $861 million in 2014.

The company reported a Return On Invested Capital (ROIC) of negative 38.6 percent with an underlying profit of $435 million, down from $1.03 billion in 2014.

The results were negatively affected by after-tax net impairments of $2.6 billion due to the low oil price expectations.

The impairments were primarily tied to “production assets with short lifetime” in Kazakhstan, Kurdistan and the UK as well as the company’s deepwater development assets in Angola and Brazil, where the company said “current conditions do not allow for viable projects.”

“While we have fully impaired the assets and significantly reduced our  on-site activities in Angola and Brazil, we continue our efforts to  seek solutions in Angola through concept changes and negotiations with authorities, partners and contractors, and in Brazil  we are pursuing extensions of the Wahoo and Itaipu licenses which expired in Q4 2015,” the company said.

Maersk Oil, a wholly-owned subsidiary of Denmark-based Maersk Group, said its underlying $435 million profit was “negatively affected by the lower average oil price of $52 per barrel versus $99 per barrel in 2014.”

The impact of low oil prices was partly offset by a 24 percent gain in entitlement production, deferred tax  income of $170 million courtesy of a UK tax rate reduction and 45 percent decline in exploration cost, the company said.

Cash flow from operating activities was $1.8 billion for the full year with cash flow used for capital expenditure coming in at $2 billion, an 8.2 percent decline from 2014.

Maersk Oil reduced operating expenses, excluding exploration costs, by 12 percent in 2015 to $2.5 billion, in line with the its targeted 20 percent reduction by the end of 2016 compared to its 2014 baseline.

As part of the expense cut, the company said it reduced its headcount by 1,250 positions during 2015.

Maersk Oil’s reserves and resources as of the end of 2014 showed 2P+2C entitlement reserves and resources of 1.31 billion barrels of oil equivalent, including proved and probable reserves of 500 million barrels of oil equivalent.

Reserves and resources numbers for 2015 will be released in connection with the company’s interim report for the first quarter of 2016.

The company said its breakeven price is currently in the range of $45 to $55 per barrel.

Maersk Oil expects entitlement production to be around 315,000 boepd in 2016.

Exploration costs for the year are expected to be in line with 2015 spending at about $423 million.


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