Yahoo! News: Troubled energy giant BP rocked by profits slump

By Roland Jackson Tue Oct 23, 7:24 AM ET

LONDON (AFP) – British energy giant BP, reeling from fatal safety errors and a boardroom scandal, said Tuesday that third-quarter profits slumped owing to lower output, weak US gas prices and refinery outages.

Net profit on a replacement cost basis plunged 44.5 percent from a year earlier to 3.87 billion dollars (2.72 billion euros) in the three months to September.

The replacement cost figure, which excludes the effect of changes in the value of oil and gas inventories, is closely watched by the market.

BP, which kicked off the quarterly earnings season for the European oil sector, added that production fell 4.0 percent to 3.65 million barrels of oil equivalent per day (boepd) during the reporting period.

The world’s third-biggest energy group is struggling to recover from the fallout of a deadly Texas City refinery explosion in 2005 which killed 15 people and raised serious safety concerns across its US facilities.

Analysts had expected downbeat results after new chief executive Tony Hayward was recently quoted as saying that BP’s third-quarter performance would be “dreadful.” He also unveiled a wide-ranging overhaul earlier this month.

Hayward took over as chief executive in July. His predecessor, John Browne, resigned following revelations that he lied to a High Court judge over how he had met his gay partner of four years.

BP said Tuesday that it was affected during the third quarter by missing revenues from its Texas City and Whiting refineries in the United States. But it added: “We expect to restore both refineries to their full crude capacity and flexibility in the first half of 2008.”

The group’s Exploration and Production unit saw profits slide 36 percent to 6.34 billion dollars due to lower volumes, weak US gas prices and higher costs.

Profits at Refining and Marketing tumbled almost 75 percent to 376 million dollars in the same period, as the division was rocked by refinery outages and falling refining margins, BP added.

However, the company said 2007 production was forecast at 3.8-3.9 million boepd, in line with previous guidance.

Earlier this month BP unveiled a major restructuring to breathe new life into the troubled energy giant and Hayward has warned that job losses will be inevitable.

The group will comprise two divisions — Exploration and Production, and Refining and Marketing — compared to three currently. BP’s Gas, Power and Renewables unit will be absorbed into the other two units.

Richard Hunter, equities analyst at stockbroker Hargreaves Lansdown, said BP could have now turned the corner.

“The difficulties in the production and refining areas have, as expected, materially affected profits for the quarter,” he noted.

“This being said, the outlook for the remainder of the year looks promising.”

Investors agreed, sending BP’s share price up 2.07 percent to 617.50 pence on London’s rising FTSE 100 index of leading companies.

Hunter added: “The recent oil price highs should underpin performance, along with the resumption of projects such as the Gulf of Mexico, and in the foreseeable future, the Texas refinery, which should return to full capacity.”

New York’s light sweet crude oil hit a record high 90.07 dollars last Friday owing to tight world energy supplies and simmering geopolitical tensions in the crude-rich Middle East, analysts said.

BP is the world’s third biggest energy company in terms of stock market capitalisation, behind number ExxonMobil and Royal Dutch Shell.

Shell, which releases third-quarter results on Thursday, underwent its own restructuring following a public relations crisis in 2004 that arose from the mis-statement of its oil reserves.

http://news.yahoo.com/s/afp/20071023/bs_afp/britainenergyoilcompanyearningsbp

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