BP announces $1 billion restructuring charges

British oil giant BP plc said on Wednesday it planned to spend about $1 billion on restructuring in the coming twelve months, as part of its program to simplify both its upstream and downstream activities and corporate functions.

The London-based multinational says it expects to incur charges in this quarter and the next five.

With oil prices falling 40% since June 2014, and hitting a 5-year low this week, BP says it will also review its capital expenditure for next year.

CEO Bob Dudley said in a briefing to analysts on exploration and production plans:

“The simplification work we have already done is serving us well as we face the tougher external environment. We continue to seek opportunities to eliminate duplication and stop unnecessary activity that is not fully aligned with the group’s strategy.”

BP joins its European rivals Total SA and Royal Dutch Shell plc in reducing budgets and offloading operations as margins shrink. In October, the company said that between $1 billion and $2 billion could be cut from its $24 billion to $26 billion planned capital spending in 2015.

Mr. Dudley describes the external environment as “tougher”.

As an integrated group, not all the company’s businesses are exposed to oil price fluctuations. Approximately one third of its Upstream projects globally are operated under production-sharing contracts. It is also investing in high-quality natural gas projects which historically are less sensitive to oil prices.

BP wrote “Importantly, while BP approves projects at $80 a barrel, it also already tests each at $60 a barrel to understand the resilience of the portfolio at a range of prices. It will also continue to consider lower price sets as appropriate. BP also has a strong balance sheet, with historically low gearing of 15% at the end of the third quarter of 2014, which provides time and flexibility to adjust to changes in the environment.”

Since the 2010 oil spill in the Gulf of Mexico, BP has completed approximately $43 billion of asset sales. The oil spill disaster has cost the company over $28 billion in damages and cleanup costs – a bill that is likely to increase as it is still fighting legal battles.