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THE WALL STREET JOURNAL: BP Plans Job Cuts as Net Rises

Oil Titan to Slash
Work Force Amid Drop
In Refining Margins
By BENOÎT FAUÇON and GUY CHAZAN
February 6, 2008

LONDON — BP PLC posted a 53% rise in fourth-quarter net profit but unveiled cost cuts and a fattened dividend in preparation for what could be a tough ride ahead for major oil companies.

The London-based oil giant said it would reduce corporate overhead by between 15% and 20% and slash 5,000 jobs, amounting to roughly 5% of its work force, by the middle of next year. BP had already planned to move about 9,500 jobs off its payrolls by selling its U.S. convenience-store business to franchisers last year.

BP reported net profit of $4.4 billion, compared with $2.88 billion a year earlier. It also said production rose as major projects came online, a rare gain among major oil companies.

But BP’s replacement-cost profit — a widely used oil-industry measure that strips out changes in the value of inventories — fell 24% to $2.97 billion. For the full year, replacement-cost profit fell 22% to $17.3 billion, largely because of poor performance at the company’s U.S. refining operations.
 
Last year’s financial results came as BP strove to recover from a string of setbacks that badly tarnished its reputation in the U.S., including the 2005 explosion at its Texas City, Texas, refinery that claimed 15 lives and leaks at its operations in Alaska. In addition, BP faces industrywide issues such as declining profit margins from refining and narrowing access to new reserves.

Chief Executive Tony Hayward described 2007 as a year “which most of us will be glad to leave behind.” He called fourth-quarter profit “very disappointing, in refining and marketing in particular.” But he said BP had made “good step-by-step progress” in bringing new oil and natural-gas fields onstream and rebuilding refining capacity.

BP formally entered a guilty plea over its role in the Texas City blast in federal court Monday. Victims are trying to persuade U.S. District Court Judge Lee Rosenthal to reject the plea deal negotiated last year, which would require BP to pay a $50 million fine, a sum they say is too small.

The Texas City disaster and other incidents hastened the departure of BP’s former CEO, Lord John Browne, this past May, and Mr. Hayward took the helm with a promise to improve BP’s operational performance and simplify the company’s arcane structure. In October, he launched a major shake-up aimed at stripping out layers of management and improving efficiency.

Mr. Hayward said BP spent $350 million on the restructuring in the fourth quarter and would spend $1 billion on it this year. BP said it would make savings of between $1 billion and $1.5 billion from the cuts in overhead — savings that would help it offset cost inflation in the industry, which Mr. Hayward said currently stands at 10%.

He also cheered investors by announcing a 25% increase in the quarterly dividend from the third quarter, to 13.5 cents, or about 81.2 cents per American depositary receipt. He said BP would be more biased toward dividends and less toward buybacks. Oil companies have been returning money to shareholders as the number of potential new projects narrows. BP shares closed up a penny, or 0.18%, to £5.43 ($10.72) in London.

Weak refining margins left the company with a $1.3 billion loss at its refining division in the fourth quarter, which included a charge associated with its exit from the U.S. convenience business. But downstream problems were offset by rising production volumes as a number of big oil and gas projects in the Gulf of Mexico, Trinidad and offshore Angola came onstream.

The company’s output averaged 3.91 million barrels of oil equivalent a day in the fourth quarter, up 1.7% from the same period the previous year. BP said production would rise this year, average more than four million barrels a day of oil equivalent in 2009 and swell to 4.3 million barrels a day in 2012. Rival Royal Dutch Shell PLC said last week that its production would likely be lower this year if current conditions persist.

To support that growth, BP said it was upgrading its guidance for capital expenditure, which is expected to increase from some $19 billion last year to between $21 billion and $22 billion this year. That is higher than guidance given in 2006 of $16 billion in 2008.

ING analyst Jason Kenney said BP’s fourth-quarter results would disappoint the market and might prompt some downgrades, but could represent the end of the company’s trough and be a buying opportunity.

Write to Guy Chazan at [email protected]

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1 Comment on “THE WALL STREET JOURNAL: BP Plans Job Cuts as Net Rises”

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    on Apr 21st, 2008 at 03:37

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