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The Wall Street Journal: BP Moves To Fix Troubles In U.S., Says Net Up 30%

By CHIP CUMMINS
July 26, 2006; Page A2

LONDON — Fighting to boost confidence in its incident-prone U.S. businesses, BP PLC said it will increase spending on safety and engineering integrity at its American refineries and Alaskan oil operations; order an independent audit of its trading operations; and form an outside advisory panel to help steer the company’s American unit.

BP announced the moves yesterday at the same time it reported a 30% jump in earnings, which were helped by higher oil and natural-gas prices but crimped by high taxes and costs. The moves come after a series of accidents and compliance failures in the U.S., including several deadly refinery accidents, an Alaskan oil spill and alleged trading shenanigans.
 
Also, John Browne said he would stay on as chief executive until the end of 2008. At a news conference in London, he denied recent speculation in the British press that he and Peter Sutherland, BP nonexecutive chairman, had clashed about the timing of his retirement, which the company and Lord Browne have long said would coincide with his 60th birthday in 2008. It was the first time Lord Browne had set a specific date for his retirement, saying Dec. 31, 2008, is “a nice calendar date.”

BP posted second-quarter net income of $7.27 billion, or 30 cents a share, up from $5.59 billion, or 23 cents a share, a year earlier. Revenue rose 24% to $73.47 billion. BP’s numbers conform to international financial-reporting standards, which differ from U.S. generally accepted accounting principles.

The company plans $15.5 billion to $16 billion of capital expenditures this year, up slightly from previous estimates because of higher costs. BP also said profits have been held down by higher taxes, citing specifically recent moves by the U.K. to increase taxes on oil production in the North Sea.

Despite rising costs and taxes, much higher oil prices helped deliver another quarter of stellar returns for BP, the world’s second-largest publicly traded oil company by market capitalization after Exxon Mobil Corp. BP said its average realization for a barrel of crude was $65.96 during the quarter, up more than a third from $47.79 during the year-earlier period. Those sharply higher prices are likely to translate into big windfalls at other large, integrated oil companies that report their earnings this week. Exxon Mobil and No. 3 Royal Dutch Shell PLC report results tomorrow.
 
The quarterly results reflected a net gain for special, nonoperational items of $6 million. Gains from asset sales outweighed a charge of roughly $460 million related to repairs and upgrades at BP’s Texas City, Texas, plant. That compares with a net charge of $822 million a year earlier.

Yesterday BP shares traded in London slipped to 630 pence ($11.66), a drop of 3.5 pence.

BP said it would spend a further $1 billion on upgrading safety and engineering-integrity systems in the U.S. The move follows pressure on BP following a spate of accidents. In March 2005, 15 workers were killed by an explosion at BP’s Texas City refinery. The refinery has suffered a number of less serious but troubling accidents since, including the death of a contractor over the weekend.

Federal officials are investigating corrosion problems at BP’s operations at Prudhoe Bay, Alaska, where one BP pipeline leaked oil earlier this year. BP said yesterday it will boost the integrity of the pipeline system in Alaska.

Last month, U.S. officials also accused BP of manipulating the U.S. propane market, a charge BP has said it will contest in court. Yesterday, BP said it will appoint a team of independent, external auditors to examine the company’s trading compliance and share the results of the audit with investigators. Finally, BP said it will appoint an independent advisory board to help guide BP America, the company’s U.S. unit, and its new CEO, Robert Malone.

Lord Browne spent much of yesterday’s news conference denying speculation he had been lobbying BP’s board to remain in place longer than planned. Amid the speculation, he said he “wanted to be crystal clear” that he had no intention of staying on past 2008, a decision he said he made with the board and its independent chairman, Mr. Sutherland.

“Even if I was asked to stay, I would decline,” he said.

In the news conference, he said he had recommended to the board a list of “more than three” internal candidates to succeed him in early 2009.

Write to Chip Cummins at [email protected]

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