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BP’s Profit Soars On Higher Prices, Rising Production

The Wall Street Journal: BP’s Profit Soars On Higher Prices, Rising Production

By CHIP CUMMINS

Staff Reporter of THE WALL STREET JOURNAL

July 28, 2004; Page A2

LONDON — BP PLC said second-quarter profit more than doubled amid sharply higher energy prices, rising production from its Russian operations and a big year-earlier charge.

Soaring oil and natural-gas prices — pushed up by surging demand and worry about the security of global supplies — are also likely to benefit other major oil companies such as Exxon Mobil Corp. and Royal Dutch/Shell Group, which report results later this week. BP said crude-oil prices averaged $34.47 a barrel in the quarter, compared with $25.73 in the second quarter last year.

BP’s profit gains also came on the back of significantly stronger refining margins in most parts of the world compared with a year earlier. U.S. gasoline prices rose sharply this year due to rising crude-oil prices and refinery constraints, and BP said supply concerns in the U.S. helped its refining results.

The British oil giant — the world’s second-largest oil company behind Exxon by market capitalization — said first-half oil and natural-gas production was 3.99 million barrels of oil equivalent per day, up 14% from the same six months last year. The increase came from Russian production that BP bought last year, when it agreed to form the TNK-BP joint venture with a major Russian producer.

The Russian gains more than made up for shortfalls elsewhere due to natural declines, oil-field sales and unplanned shutdowns. BP’s first-half production outside Russia fell 7% year-to-year. Stripping out the loss of output due to oil-field sales, production was down 3% from the first six months of 2003.

Using relatively straightforward technology advances, BP said the joint venture boosted Russian output even as BP and its major competitors struggle to moderate declines in mature fields elsewhere. For instance, BP Chief Executive John Browne said yesterday that BP engineers have improved the efficiency of submersible pumps used in its Russian wells to lift oil to the surface.

BP’s success there so far, however, comes amid growing uncertainty about the investment climate in Russia. OAO Yukos — Russia’s largest oil producer and onetime darling of foreign investors — is embroiled in a bruising, politically charged legal battle with the Kremlin. The government is seeking payment of a $3.4 billion tax bill and is planning to seize and sell the company’s main production unit, Yuganskneftegaz, which provides about 60% of Yukos’s oil output.

Lord Browne said the Kremlin’s moves against Yukos had no repercussions for TNK-BP. “BP’s presence is decidedly welcome in Russia,” he said.

BP said net income was $3.9 billion, or 18 cents a share, compared with $1.59 billion, or seven cents a share, in the second quarter last year. BP recorded a significant charge to its reported net income in the second quarter of 2003 largely because of stock-holding losses.

BP reports in accordance with British accounting standards, and its reported income isn’t comparable to net income under U.S. generally accepted accounting principles. Revenue rose 30% to $71.15 billion from $54.79 billion.

In 4 p.m. composite trading on the New York Stock Exchange, BP’s American depositary shares were down 25 cents at $53.90 each.

Write to Chip Cummins at [email protected]

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