Bloomberg: BP Net Falls on Lower Refining Earnings, Gas Prices (Update1)

By Fred Pals and Eduard Gismatullin

Oct. 23 (Bloomberg) — BP Plc, Europe’s second-biggest oil company, said profit declined 29 percent in the third quarter because of lower refining earnings and natural-gas prices.

Net income fell to $4.41 billion from $6.23 billion in the year-earlier period, the London-based company said today in a statement distributed by the Regulatory News Service. Excluding one-time items and changes in inventories, profit beat analysts’ estimates.

Refining margins dropped 5.2 percent as gasoline demand weakened with the end of the U.S. summer driving season, and natural gas prices slid 6.4 percent. BP, the first of the world’s five largest oil companies to report, is cutting jobs and breaking up a division to restore investor confidence after Chief Executive Officer Tony Hayward called the third quarter “dreadful.”

“Refining margins in the U.S. are under severe pressure,” Herman Bots, an analyst at Theodoor Gilissen Bankiers NV in Amsterdam, said yesterday in an interview. “It’s very difficult to maintain the level of profits we have seen in previous quarters.”

Hayward, who took over from John Browne in May, is seeking to revive profit growth after a Texas refinery blast two years ago killed 15 people, new Gulf of Mexico oil and gas projects failed to start on time and rusty pipelines in Alaska shut Prudhoe Bay, the biggest U.S. oil field.

BP’s shares are up 6.6 percent this year, about half the gain of bigger European competitor Royal Dutch Shell Plc, which reports in two days. BP shares closed yesterday at 605 pence in London.

Record Oil

Oil company share gains this year have been bolstered by surging crude prices, which in New York were an average 6.4 percent higher in the third quarter than a year earlier. Futures reached $90.07 on Oct. 19, the highest since the contract was introduced on the New York Mercantile Exchange in 1983.

Excluding gains or losses from holding inventories and one- time items, profit fell 6.4 percent to $4.21 billion. That beat the $3.98 billion median estimate of 13 analysts surveyed by Bloomberg.

Of the 34 analysts tracked by Bloomberg who cover BP, 18 have a “buy” rating for the shares. Thirteen analysts advise holding the stock, with three recommending “sell.”

Shutdowns at refineries in Texas City, Texas, and Whiting, Indiana, cut BP’s refining capacity. Oil and gas production from the North Sea was disrupted after the Central Area Transmission System pipeline was shut on July 1 after it was damaged by a ship’s anchor.

Angola, Gulf of Mexico

BP is counting on new projects scheduled to come on stream over the next year to help it resume production growth after oil and gas output fell last year for the first time in a decade.

The company started pumping crude from Angola’s Greater Plutonio field on Oct. 1, the first offshore project operated by BP in the country, the second-biggest oil producing nation in sub-Saharan Africa.

BP is in the process of testing equipment at the Atlantis platform in the U.S. Gulf of Mexico, ahead of the planned start of commercial production before the end of the year. The Thunder Horse platform, another platform in the Gulf, which has been delayed since late 2005, is due to start by the end of next year.

`Materially Lagged’

“BP’s performance has materially lagged our peer group in the last three years,” Hayward said Oct. 11, when he set out plans to simplify the company’s organization. “We expect the revenue gap to narrow as major new production comes on stream.”

BP plans to bring its U.S. refineries back to full capacity next year. Combined, Whiting and Texas City, the site of a 2005 explosion that killed 15 people, can process 865,000 barrels a day of crude, or more than OPEC member Qatar.

Refining margins, or profits from turning crude into fuels such as gasoline and diesel, fell to $8.05 a barrel in the third quarter from $8.49 in the year-earlier period, according to data posted on BP’s Web site.

Natural gas prices in the U.K. tumbled 9.3 percent in the quarter to 30.58 pence a therm. Benchmark U.S. prices declined to $6.16 per million British thermal units, according to BP.

To contact the reporters on this story: Fred Pals in Amsterdam at [email protected] ; Eduard Gismatullin in London at [email protected]

Last Updated: October 23, 2007 02:25 EDT

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