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BP spells out losses from hurricanes

Financial Times: BP spells out losses from hurricanes

“Royal Dutch Shell, BP’s Anglo-Dutch rival, has suffered extensive damage at its Mars platform, of which BP also owns 28.5 per cent. Shell hopes to have 60 per cent of its usual 450,000 barrels a day of production back on line by the end of the year, though it may not be producing from its Cognac field again until next year. Mr Lanstone calculates that Shell is likely to have lost at least 100,000 barrels a day of production this quarter because of the hurricanes, and 60,000 barrels a day of refined output.”

Wednesday 5 October 2005

By Thomas Catan and Carola Hoyos

Published: October 5 2005

BP on Tuesday became the first big oil company to put a price on the hurricanes that have ravaged the Gulf of Mexico in recent weeks.

Its loss of 145,000 barrels of oil equivalent a day in production was double the amount expected by some analysts, and means the company will miss its production target of 4.1m to 4.2m barrels of oil equivalent a day, set out in February.

The problems at the world’s second-biggest oil company by market value sent shock waves through the industry, deepening concern of the impact on rivals.

ConocoPhillips, the US’s third-biggest energy group, says it has lost 20,000 barrels a day of oil production this quarter because of hurricanes Katrina and Rita. It estimates its share of insurance premium charges affecting the third quarter will be $30m (£17.1m) after tax.

ExxonMobil says damage to its facilities has been “limited”. But it is still losing 50,000 barrels a day of crude and 570m cubic feet of natural gas production. Among other damages suffered by Chevron, its Typhoon platform is floating upside-down in the water, causing the loss of 40,000 barrels of crude a day.

Even so, the bad weather in the Gulf seems to have taken an especially heavy toll on BP – a problem that even the soaring price of oil is unable to offset fully.

“This impact is very significant for BP,” says Matthew Lanstone, executive director and analyst at Goldman Sachs. “We would not expect Shell’s financial effect to be quite as large.”

Indeed, Royal Dutch Shell, BP’s Anglo-Dutch rival, has suffered extensive damage at its Mars platform, of which BP also owns 28.5 per cent. Shell hopes to have 60 per cent of its usual 450,000 barrels a day of production back on line by the end of the year, though it may not be producing from its Cognac field again until next year.

Mr Lanstone calculates that Shell is likely to have lost at least 100,000 barrels a day of production this quarter because of the hurricanes, and 60,000 barrels a day of refined output.

Overall, the storms have “shut-in” nearly 1.4m barrels of oil a day of production – 93 per cent of production in the Gulf of Mexico – and 7.5bn cubic feet for natural gas a day – three-quarters of normal production.

Between them, the storms have caused the loss of more than 8 per cent of yearly oil production and 6 per cent of gas production in the Gulf of Mexico, according the US government figures.

Hurricane Katrina hit refineries on the coast badly, while Rita is thought to have damaged more offshore oil rigs and platforms than any storm in history. BP and other companies working in the Gulf of Mexico are still unsure how long it will take them to restart production from closed installations. In particular, they must determine the extent of the damage to underwater pipelines, which often take the longest time to repair.

In BP’s case, the combination of storms and high prices has affected the company’s operations in some unexpected ways.

For example, the storms had a large impact on the company’s petrol stations. Despite accusations in the US that petrol stations were “price gouging” after the hurricane, BP says it is likely to lose money from its marketing operations this year because the sharp rise in wholesale fuel has squeezed retail margins.

The high cost of oil has also reduced the company’s overall production by a further 50,000 barrels of oil equivalent a day. Under production sharing agreements with many host countries, high oil prices mean the government is obliged to give the company less of the production to repay costs.

BP’s refinery in Texas City was also forced to cut production, preventing it from capitalising on soaring refining margins.

“BP’s third-quarter trading statement . . . highlighted a much bigger impact than expected from the hurricanes, as well as a significantly weaker-than-anticipated performance in marketing,” wrote Goldman Sachs in a note to investors.

The investment bank said that, with sky-high oil prices, BP and other oil companies were still operating in a very positive environment. But it saw better value for investors elsewhere.

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