Home Companies Industry Politics Money Opinion LoungeMultimedia Science Education Sports TechnologyConsumerSpecialsMint on Sunday

BP profit down 62%, beats forecast as cuts costs

BP profit down 62%, beats forecast as cuts costs
Comment E-mail Print Share
First Published: Tue, Apr 28 2009. 02 16 PM IST
Updated: Tue, Apr 28 2009. 02 16 PM IST
London: British oil major BP Plc reported a 62% fall in first-quarter net profit on Tuesday due to a collapse in oil and gas prices, but heavy cost cutting helped it beat all analysts’ forecasts.
Europe’s second-largest oil company by market value said its replacement cost (RC) net profit, which strips out gains or losses related to changes in value of fuel inventories, fell to $2.39 billion in the first three months of the year.
BP’s performance echoes heavily reduced but stronger-than-expected results from US oil major ConocoPhillips and Italy’s ENI last week, which raised hopes the sector was adapting to the oil price slump.
“BP’s Q1 results reflect a sharper-than-expected fall in unit costs coupled with a strong oil trading performance,” Neill Morton, oil analyst at MF Global, said.
BP shares rose 1.4% to 490 pence at 0837 GMT, bucking a 0.55% drop in the DJ Stoxx European oil and gas sector index.
BP said its response to the drop in oil prices from a record above $147/barrel in July to around $50/bbl now was to slash overheads and put pressure on suppliers.
“We need rapidly to bring our costs to a level that is compatible with a $50 world,” Chief Executive Tony Hayward said in an email to staff seen by Reuters.
The cost of producing oil and gas fell 11% in the quarter compared to the same period in 2008.
This trend means BP now expects capital expenditure to be under $20 billion this year, compared with the $20 billion to 22 billion BP said in March it expected to spend.
A spokesman added that the company’s lower capital expenditures were in small part due to delays in some projects.
Strong Trading
BP, which has a reputation as one of the most aggressive traders of oil cargos and derivatives in the market, said first quarter earnings were helped by a “very strong” performance in its energy trading operation.
The contango in oil markets, whereby future prices for crude are higher than today’s prices, helped BP, and ConocoPhillips, play the markets successfully, Morton said.
The companies, and others such as Royal Dutch Shell Plc, which reports its first-quarter earnings on Wednesday, have been buying oil today, simultaneously entering contracts to sell it in the future, locking in a profit, and in the mean time storing the crude offshore in tankers.
London-based BP said oil and gas production rose 2.6% to 4.02 million barrels of oil equivalent per day (boepd), the first time the company topped the 4 million boepd level since the second quarter of 2006.
In recent years, most of the large international oil and gas companies have reported falling output and are expected to do the same this quarter.
BP’s debt levels rose as it borrowed to fund its generous dividend. Gearing rose to 23% compared with 19% last year.
BP needs oil prices of $60/bbl to generate enough cash to fund investment and pay its dividend, analysts said, and investors fear a prolonged oil price slump could force the company to cut its payout.
Nonetheless, analysts at Cazenove said the current dividend was “affordable” in 2009.
Excluding one-offs items, which amounted to a net charge of $194 million, the RC result was $2.58 billion, ahead of an average forecast of $2.28 billion from a Reuters poll of seven analysts.
Comment E-mail Print Share
First Published: Tue, Apr 28 2009. 02 16 PM IST
More Topics: Company Results | BP Plc | Oil | ConocoPhillips | ENI |