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BP swings to a loss after oil price decline

A BP gas station in central London. (Toby Melville/Reuters )
Published: February 3, 2009

LONDON: BP became the latest oil company to report a loss for the fourth quarter on Tuesday and warned that demand for oil is likely to continue to drop this year as the global recession deepens.

The company, Europe’s second-biggest oil company behind Royal Dutch Shell, reported a loss of $3.3 billion, its first loss in a quarter in seven years. In the same period a year earlier, BP had a profit of $4.4 billion. The chief executive, Tony Hayward, warned that “the next year or two will be challenging” and that the times of record earnings on the back of high oil prices are over and might not return “for some time.”

Oil giants such as Shell, ConocoPhillips and Total reported declining revenue or losses in the fourth quarter as the price of oil dropped to the lowest level in four years in December. BP said an oil price of about $60 a barrel is “appropriate” because it would allow the company to invest in oil production projects to guarantee supplies once demand recovers. A barrel of oil traded at $40.49 on Tuesday afternoon.

“This not a particularly strong set of results from BP,” said James Neale, an analyst at Credit Suisse in London, but he added that there are some “positive signs” as oil and gas production rose.

BP also partly blamed its loss on adverse exchange rates as it booked a $700 million loss at its Russian joint venture TNK-BP, which is still without a chief executive after an earlier dispute between BP and its Russian billionaire partners about how to run the business.

BP shares fell 2.22 percent to £4.74 in London on Tuesday and are down 13 percent over the last twelve months.

Shares in other oil companies also declined over the last year amid concern the global recession will continue to weigh on oil prices. Shell last week posted its first quarterly loss in ten years while France’s Total reported a 25 percent drop in revenue.

Despite the loss, BP said it will pay a dividend of 14 cents per share for the quarter, 3.7 percent more than a year ago. Hayward said he plans to continue with the cost cutting program he started when he took over almost two years ago and to improve earnings by adding production, which remains difficult because of high costs for new projects. BP cut about 3,000 jobs last year and expects to exceed its target of 5,000 job cuts by the middle of this year, Hayward said.

He also said that BP’s main challenge is “to strike a balance” between returns to shareholders or dividends and “investing for the future” and called on all nations and companies to “invest so that adequate supplies are available once the downturn ends.”

BP has rebuilt full capacity at its Texas City refinery, which ran at reduced capacity ever since an explosion killed 15 workers in 2005, and stepped up production at its refinery in Whiting, Indiana, where a fire broke out in 2007. Production in the fourth quarter rose 1 percent and Hayward said he expects production to continue to grow this year.

To improve earnings, the company plans to sell assets worth as much as $3 billion. Hayward said as recently as October that the global financial crisis could “create opportunities for us and we will look at those very closely” but on a media call on Tuesday rejected the possibility of a large merger, like one between BP and Exxon Mobil. “I’m not certain the industrial logic” for such large combinations is “terribly compelling,” he said.

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