10 January 2008, 9:01am
Investment bank Merrill Lynch slashed its fourth quarter profit forecast for BP by 25% on concerns about lower production, higher costs, and a whopping tax bill.
At a time when punters expect profits to be gushing in at the exploration giant, due to record oil prices, the accident prone group looks set to reveal a far gloomier set of figures when it reports next month.
Merrill analyst Mark Iannotti said: ‘We cut our (fourth quarter earnings) estimates by 25% from £3bn to £2.24bn on higher than forecast field commissioning costs, weaker than expected marketing margins and higher tax.’
Investors were spooked by the earnings downgrade, which wiped £5bn off BP’s market value, as shares fell 23p, or 3.6%, to close at 610½p.
The firm denied it has been guiding the City to cut fourth quarter forecasts, but some analysts said the oil giant has been highlighting the potential impact of high oil prices on both taxes and production.
A BP spokesman insisted: ‘There’s no confusion out there, we haven’t been guiding them down. It’s a very jittery market. It’s a thin market, very nervous. But we are not telling them anything odd.’
He said the group publishes a weekly update on profit margins on its website and said analysts should know a higher oil price means a higher tax bill.
BP’s tax bill in the fourth quarter last year fell to 25% from 32% in 2005, amounting to a charge of £1.9bn. Oil prices have been much higher in this year’s fourth quarter, prompting Merrill to almost double its tax charge expectations for the company to 43%, implying a bill of over £3bn for the three month period.
The latest debacle follows September’s impromptu trading update by BP chief Tony Hayward to staff in Houston, when he said third quarter figures would be ‘dreadful’.
• Royal Dutch Shell has been asked by the Iraqi government to conduct tests on a gas field near the Syrian border that could lead to it taking a stake in the field.
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