Company faces losses, share-price fall and more fines over Deeepwater Horizon spill with underlying profits likely to take a hit

BP plans to cut its exploration activity in half and reduce overall spending by 20% after crashing to a $1bn (£660m) loss in the final quarter of the year as a result of low oil prices.

Its chief executive, Bob Dudley, said a “raging gale” was sweeping through the industry and he believed it could be years before there was a significant bounce-back in the value of Brent crude.

Asked exactly how low crude prices could go and how long that might last, especially since prices have risen slightly in recent days, Dudley said: “It feels like 1986 to me,” referring to a dramatic period when the price plunged from $40 to $9.

Dudley’s comments came as BG, another British-based oil and gas group, underlined the depth of the problems facing the sector when it wrote down the value of its assets by $9bn and reported a pre-tax annual loss of $2.3bn.

“We have now entered a new and challenging phase of low oil prices through the near and medium term,” warned Dudley: “Our focus must now be on resetting BP: managing and rebalancing our capital programme and cost base for the new reality of lower prices while always maintaining safe, reliable and efficient operations.”

The company took a $6.5bn writedown charge – $3.6bn after tax – on the value of its North Sea and other fields to reflect the fall in oil prices from $115 per barrel last June to $56 today.

The drop was largely responsible for BP reporting a $969m (£645m) replacement cost loss in the final three months of the year compared with a profit of $1.5bn for the same period last year.

The underlying replacement cost loss – a “clean” figure preferred by analysts – came in at $2.2bn, compared with $2.8bn last time, helped by an unexpectedly high contribution of $470m from its holdings in Moscow-based Rosneft.

Dudley unexpectedly said he was still keen to invest further in Russia, saying that there were opportunities to expand even with western sanctions in place, but BP admitted that it expected to see the annual dividend from Rosneft to BP cut in half to about $350m this summer.

Shares in BP fell by more than 2% in early trading despite the company raising the dividend for investors to 10c, but analysts at the broker Jefferies liked what they saw.

“Compared to peers, we believe BP has offered one of the most responsive outlooks to the lower near-term crude environment,” it said in a research note.

The troubled oil company, which has in the past been a subject of takeover speculation, said it would be slashing its spending for 2015 to $20bn, down from a target of between $24bn to $25bn in 2014. Among the projects that are being put on hold is the multibillion-dollar Mad Dog development in the Gulf of Mexico.

BP also revealed it had spent $43.5bn on fines and other liabilities resulting from the Deepwater Horizon blowout of 2010. It could still face charges of $13.7bn under a Clean Water Act, but is hopeful it can avoid this and has only set aside $3.5bn in its accounts to pay for this contingency.

BP admitted it was difficult to judge the final financial impact of the Deepwater Horizon accident. “The total amounts that will ultimately be paid by BP in relation to all the obligations relating to the incident are subject to significant uncertainty, and the ultimate exposure and cost to BP will be dependent on many factors. These could have a material impact on our consolidated financial position, results and cashflows,” it said in a statement accompanying the accounts.

BP made no comment on the impact of its new spending cuts on jobs. The company, which has cut hundreds of jobs in Aberdeen and thousands around the world, has also frozen pay for its 84,000-strong workforce.

Last week the British-based oil company raised more cash to pay for its Gulf liabilities by handing over a larger stake and operatorship of the Gila and Tiber fields in US waters to Chevron and ConocoPhillips.

Meanwhile, BG said it would reduce investment by almost a third this year to between £4bn and £4.7bn and gave a downbeat assessment of prospects for oil in Britain.

Andrew Gould, the BG chairman, said: “I don’t think you can, at these oil prices, hope for a major resurgence of the North Sea on the basis that there are a lot of other places in the world where the reserves’ life is a lot more promising than it is in the UK sector of the North Sea.”