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Guardian Unlimited: BP pays for safety and production woes

Fiona Walsh, business editor
Tuesday February 6, 2007

Oil giant BP today reported a fall in fourth-quarter profits, but still pushed its full-year figure up to a record $22.25bn (£11.33bn), an increase of 15% on 2005.

Hit by lower production, the group’s profits for the final three months of the year fell by 12% to $3.9bn, against $4.4bn a year ago, and almost $7bn in the third quarter.

At the same time it raised spending targets from $15.5bn to $18bn due to increased investment in improving safety at its US refineries.

BP’s profits are given on a replacement cost basis, reflecting the current cost of supplies. The fourth-quarter figure included an exceptional cost of $152m, without which profits would have been just over $4bn.

But shares in the group fell 7p to 534.5p in early trading as it disappointed analysts by lowering its production targets for the current year. It now expects to produce 3.8 – 3.9m barrels of oil a day in 2007, down from 3.93m in 2006.

BP’s profits were slightly ahead of analysts’ expectations but contrast with those of rival Shell, which turned in strong fourth-quarter results last week, helping its annual profits soar by 21% to $25bn.

Exxon, the world’s largest oil group, also reported record results last week, pushing its net income up to $39.5bn – the biggest-ever profit in US corporate history.

BP chief executive Lord Browne said today the fourth-quarter results reflected the “recent declines in the overall price and margin environment, as well as operational factors and increased safety and integrity investments”.

He added: “Our record full-year replacement cost profit and operating cash flow supported the group’s capital programme and increased dividends and share buybacks.

“We remain committed to addressing the recent operational issues while executing our strategy with discipline and focus.”

These will be the last set of annual figures presented by Lord Browne, who has bowed to pressure and is stepping down at the end of the year.

His departure follows a series of setbacks for the group, from the Texas City refinery explosion, in which 15 people lost their lives and many more were injured, to the oil spill in Alaska.

According to a report in today’s Financial Times, federal criminal investigators are examining new safety allegations made against the group.

These involve claims that its BP Alaska operation substituted water for corrosion-inhibiting chemicals as far back as 1998, issuing staff with written instructions against replacing deficient systems, components and pipes to save money.

Grand juries in Alaska and Texas are already reviewing evidence by the federal investigators to decide whether to bring criminal charges against BP and its executives.

Lord Browne had enjoyed the reputation of Britain’s most admired industrialist, but his standing in industry and the City has been shattered over the past year.

Last month, the Baker inquiry into safety issues at BP in the wake of the Texas City disaster detailed a series of lapses at the group, accusing it of “a corporate blindspot” relating to safety.

Lord Browne will be replaced as chief executive in August by BP’s exploration and production director, Tony Hayward.

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