London: BP PLC, Europe’s second largest oil company, said Tuesday that lower world oil prices drove second-quarter profit down by 53% compared with a year earlier and saw little sign of growing demand in the months ahead.
Net profit for the period was $4.39 billion, down from $9.36 billion in the second quarter of last year but better than market forecasts. It was better than the $2.56 billion profit reported in the first quarter, when oil prices were in a deep slump.
Oil prices rose off those lows during the second quarter, with Brent Blend oil averaging $59.13 a barrel in the second quarter compared to $44.46 in the first quarter — and $121.18 in the second quarter of 2008.
Oil prices sagged early in the year as economies around the world went into recession, but have risen amid expectations of at least limited economic recovery later this year.
Chief executive Tony Hayward offered a subdued outlook, saying he expected energy demand to be sluggish in the near term.
“The overall picture is of energy demand now stabilizing following significant falls in the first half of the year,” Hayward said. “We see little evidence of any growth in demand and expect the recovery to be long and drawn out.”
Daily production was up 4% compared to the second quarter last year, with production ramping up in the Thunder Horse and Dorado fields in the Gulf of Mexico.
Thunder Horse, operated by BP and partly owned by Exxon Mobil, began producing oil and gas last year, nine years after the field’s discovery. It’s designed to produce 250,000 barrels of oil and 200 million cubic feet of natural gas each day, which would make it the Gulf’s largest producer.
Replacement cost profit — a key measure for oil companies which values crude oil and fuel inventories at current prices — was $3.14 billion in the second quarter, up from $2.4 billion in the first quarter and far below the year-earlier result of $6.7 billion.
BP shares were down 1.6% at 510.50 pence on the London Stock Exchange.
“While second-quarter results showed further evidence of the considerable progress BP has made in its operational recovery, we feel this is largely discounted in valuations, with the stock now back to within 6% of its 12-month high in sterling terms,” said Gordon Gray and James Evans, analysts at Collins Stewart.
BP, which is the first of the major oil companies to report earnings for the second quarter, said its dividend of 14 cents per share for the quarter was unchanged from last year.
“BP has now thrown down the gauntlet to the rest of the oil supermajors, who will report their numbers over the next few days,” said Richard Hunter, analyst at Hargreaves Lansdown Stockbrokers, who rated the shares as “buy.”
“Indeed, it may yet have regained its spot as the largest European oil power at the expense of Shell.”
Peter Hitchens, analyst at Panmure Gordon & Co., continued to rate BP as a “sell,” believing that the operating environment will continue to weigh on the share price.
“However, BP’s underlying performance does appear to be getting better compared to its peer group,” Hitchens said. “The company is now starting to see its much promised production increases and is starting to close the gap with its peers on the downstream operations.”
BP said it had cut its cash costs by $2 billion in the first half of the year compared to 2008, hitting its full-year target early, and said it expected achieve savings of more than $3 billion by the end of the current year.