Bloomberg: BP Struggles to Regain Confidence as Profit, Output Likely Fell

By Stephen Voss and Fred Pals

April 23 (Bloomberg) — BP Plc replaced its chief executive officer, settled claims from a deadly Texas refinery blast and cleaned up leaks in Alaskan oil pipelines during the past year. Reviving profit and gaining investor confidence may take longer.

Europe’s second-largest oil company probably will report tomorrow that first-quarter profit dropped and production fell for the seventh consecutive period. Shares of London-based BP slid 20 percent in a year, lagging behind Exxon Mobil Corp.’s 24 percent gain and a 6.4 percent increase in the FTSE 100 Index.

Tony Hayward, who becomes CEO in August, faces a “marathon, not a sprint” to become Europe’s top oil company, according to Merrill Lynch & Co. analyst Mark Iannotti. Earnings probably slid 23 percent to $4.08 billion from a year earlier, excluding one- time items, the average of eight analysts surveyed by Bloomberg News showed.

“BP will show the biggest drop of all oil companies,” Stephane Foucaud, an analyst at Societe Generale SA in London, said. He rates BP “sell.” Oil and gas production is declining and taxes are increasing in Alaska, Foucaud said.

John Browne, 59, will retire as CEO on July 31, more than a year earlier than planned. He’s leaving after the 2005 explosion at the Texas City refinery killed 15 workers, former employees were accused of attempting to manipulate U.S. propane and oil trading and the company shut the Alaska oil field, the biggest in the U.S., because of leaks caused by inadequate pipeline maintenance.

Production Decline

Hayward, 49, joined BP in 1982. He was appointed head of exploration and production in January 2003, and CEO on Jan. 12. When the company reported fourth-quarter earnings on Feb. 6, he said BP would consider slowing down exploration and production projects “when necessary” to “preserve long-term value.”

BP’s oil and gas output probably fell from a year earlier after equipment failures curbed shipments from the Shah Deniz field in Azerbaijan, the Northstar deposit in Alaska and the Mad Dog oil and gas platform in the Gulf of Mexico. Two other delayed projects in the Gulf, Atlantis and Thunder Horse, aren’t scheduled to start pumping until the end of 2007 and 2008, respectively.

Merrill estimates BP’s daily output last quarter was 3.847 million barrels, compared with 4.035 million a year earlier and 3.839 million in the last three months of 2006.
Compensation Vote

BP is the first of the world’s biggest oil companies to report earnings for the three months that ended in March. Irving, Texas-based Exxon Mobil, the world’s largest publicly traded company, releases figures on April 26, followed by Royal Dutch Shell Plc, based in The Hague, on May 3.

Almost 20 percent of BP shareholders voted to reject the pay and bonus packages for company executives, including Browne, at the company’s annual meeting this month. Only 4.2 percent voted against the compensation proposal last year.

Merrill’s Iannotti cut his recommendation for BP on April 19 to “neutral” from “buy,” saying recent stock gains would be difficult to extend because of a lack of “game-change catalysts.” Shares of BP have added about 11 percent in the past month, outpacing the 7.3 percent rise in Shell, the biggest European oil company.

BP isn’t the only company struggling with output. Rome-based Eni SpA, the region’s fourth-largest oil company, was the only one of Europe’s five biggest producers to report an increase in production in 2006. Paris-based Total SA, the third-largest, was alone in raising its growth forecast for this decade. Madrid- based Repsol YPF SA, BP and Shell produced fewer barrels last year and cut their forecasts. Repsol is the fifth-ranked European producer.

E&P Profit

Merrill expects BP’s production to grow 1.7 percent a year on average until 2010, compared with 4.5 percent at Total.

Profit at Hayward’s exploration and production division probably fell in the first quarter because of lower crude prices and output. U.K. natural gas prices averaged less than a third of what they did a year earlier. North Sea Brent crude spot prices fell 6.5 percent, according to BP figures.

Earnings at the exploration unit will be $2 billion lower than a year earlier, according to Tony Shepard, an analyst at Charles Stanley & Co. in London. He rates BP “accumulate.”

Profitability rose at BP’s refining business, headed by John Manzoni, with margins averaging $9.45 for each barrel processed, about 50 percent higher than in the first quarter of 2006.

BP spokesman Robert Wine said the range of analyst estimates for BP’s first-quarter profit excluding items and inventories was $3.83 billion to $4.28 billion. The average was $4.06 billion.

Shell is expected to say profit by the same measure fell 5 percent from a year earlier, to $5.66 billion, according to Citigroup.

To contact the reporters on this story: Stephen Voss in London at [email protected] Fred Pals in Amsterdam at [email protected]
Last Updated: April 22, 2007 19:26 EDT

 

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