BP plc reported a 91% decline in fourth quarter profits year/year, with earnings off 89% sequentially as writeoffs from canceled projects and writedowns from lower realizations slammed the supermajor.

Underlying replacement cost profits, used by European-based producers, strip out one-time losses. BP’s replacement costs plunged in 4Q2015 by 91% to $196 million from $2.2 billion a year earlier. Wall Street expected earnings to average $730 million in the quarter. With the value of oil and gas assets plunging, BP recorded a writedown of $1.6 billion in the quarter. It also took a $443 million charge related to the 2010 Macondo well blowout.

For the year, losses amounted to $6.48 billion, versus $3.78 billion in profits during 2014.

Group CEO Bob Dudley said during a conference call on Tuesday that the demand for oil likely would catch up with falling output later this year, easing the glut that has ravaged commodity prices.

“As these start working together, the supply and demand fundamentals, you can characterize the price as lower for longer, but it’s not lower forever.”

CFO Brian Gilvary blamed the quarterly losses on lower upstream prices, as well as lower supply and trading, offset partially by lower operating costs. Sequential profits also fell because of lower upstream realizations, along with a weaker refining environment.

In the upstream segment, replacement costs in 4Q2015 fell year/year to $730 million from $2.2 billion and were down sequentially from $820 million. However, underlying oil and gas production increased by 2% year/year.

As cutbacks continue and capital efficiencies take hold, BP is eliminating about 7,000 jobs over the next two years following about 4,000 personnel reductions over the past year. BP employed about 30,000 people worldwide two years ago; by the end of 2017, the workforce is expected to number below 20,000 (see Daily GPI, Jan. 12).

“Ours is a long-term business,” Dudley said. “We need to respond to today’s challenges in a very thoughtful way so as not to compromise safety or the growth plans that are essential for the future…We must be efficient with our scarce capital,” and only sanction projects that are competitive.

This year, BP expects full-year underlying production to be “broadly flat” versus 2015, Gilvary said. Output during the quarter averaged 3.4 million boe/d. Looking ahead, BP expects to add more than 800,000 boe/d from new projects starting up between 2015 and 2020.

“We have some significant new projects that will increase the share of gas production in our portfolio,” Dudley said. More than half of the new output relates to seven projects involving liquefied natural gas, gas pipelines and gas projects overseas.

Last October, BP estimated it would spend $17-19 billion a year through 2017 for capital investments, but spending is now likely to be in the lower end of the range.

“This fine tuning of our guidance reflects the ongoing rebalances of cash in the lower price environment,” Gilvary said. “Depending on where oil prices settle and how this continues to impact deflation, we will keep the capital frame under review as we move through 2016 and beyond.” Annual controllable cash costs in 2015 were $3.4 billion lower than in 2014 and are on track to be close to $7 billion lower in 2017.

Breakeven prices for major oil and gas projects also have declined by about 15% over the past year, which means that most of BP’s pre-final investment decision projects “now breakeven below $60/bbl,” Dudley said. “We have 44 billion boe, including 11 billion bbl of crude reserves from the existing base asset sanctioned projects and a further 33 billion bbl underpinning our growth toward the end of the decade,” including from the Gulf of Mexico. “All of this gives us considerable flexibility to adapt to changes in the energy mix and world demand over the long term…”