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BP Cuts Spending Target After 64 Percent Profit Slump

Bloomberg.com

By Eduard Gismatullin

April 28 (Bloomberg) — BP Plc, Europe’s second-biggest oil company, cut its 2009 spending target for a second time after posting a 64 percent slump in first-quarter profit as the recession dragged down crude and natural-gas prices.

Net income dropped to $2.56 billion, or 14 cents a share, from $7.09 billion, or 37 cents, a year earlier, London-based BP said today in a statement. Excluding inventory changes and one- time items, earnings beat analysts’ estimates.

“It’s not just oil prices, it’s also U.S. gas prices that have been particularly weak,” said Ivor Pether, who covers oil and mining in a team that oversees about $7 billion at Royal London Asset Management. He holds BP stock.

Chief Executive Officer Tony Hayward said oil prices are expected to “remain low” and the company achieved more than $1 billion in cost cuts in the quarter. Capital spending, excluding acquisitions and asset exchanges, will be less than $20 billion this year, down from an initial estimate of as much as $22 billion.

BP is the second of Europe’s oil majors to report earnings. Eni SpA, Italy’s biggest oil company, last week said first- quarter earnings fell 43 percent to 1.9 billion euros ($2.5 billion). Royal Dutch Shell Plc, BP’s larger rival, is likely to report a 67 percent drop in profit excluding one-time items and inventory changes to $2.56 billion tomorrow, based on the median estimate of 11 analysts compiled by Bloomberg.

BP’s adjusted earnings were $2.58 billion. On that basis, profit was expected to be $2.2 billion, according to the median estimate of nine analysts surveyed by Bloomberg. Sales fell 47 percent to $48.1 billion.

Analyst Recommendations

Of the 38 analysts that cover BP, 23 recommend buying the stock, 9 have “hold” recommendations and 6 advise clients to sell the shares. BP is down 8 percent this year, compared with a 14 percent decline for Shell.

Producers are postponing projects, deferring earnings targets and reducing investment after oil prices slumped about $100 from a record. BP may scale back its joint Sunrise oil- sands project in Alberta with Husky Energy Inc., after delaying an investment decision.

U.S. oil futures averaged $43.31 a barrel in the first quarter, 56 percent lower than a year earlier, after plunging from a record $147.27 in July. U.S. natural gas futures averaged $4.468 per million British thermal units, down 49 percent. New York oil futures traded at $49.10 a barrel today.

Output Boost

Output at BP climbed the most in almost four years in the first quarter to 4.016 million barrels of oil equivalent a day, That followed the ramp-up of the Thunder Horse platform in the Gulf of Mexico. Thunder Horse, the world’s largest semi- submersible platform, is currently producing more than 300,000 barrels of oil equivalent a day.

“We expect BP to be the only company to register meaningful year-on-year volume growth,” said Mark Bloomfield, an analyst at Citigroup Global Markets Inc. in London, before the results were announced.

Refining margins, or profits from turning crude into fuels such as gasoline and diesel, also gained in the period.

BP’s Global Indicator Margin, a broad measure of refining profitability, rose to $6.20 a barrel in the first quarter from $4.64 a year earlier, according to data posted on BP’s Web site. U.S. Midwest margins increased to $7.03 a barrel from $1.11.

BP’s joint venture in Russia, TNK-BP, reported profit of $134 million, down from $744 million a year ago. That followed a $682 million loss in the final three months of 2008.

BP settled a dispute over the running of TNK-BP with its billionaire co-owners last year after Hayward agreed to replace TNK-BP’s CEO Robert Dudley.

The accord left BP with its stake in the 50-50 venture intact while acceding to demands by the Russian partners — Mikhail Fridman, German Khan, Viktor Vekselberg and Len Blavatnik, collectively known as AAR — for a more independent board. TNK-BP accounts for almost a quarter of BP’s global output and reserves.

(BP will hold a Webcast presentation at 2 p.m. London time. To register and listen, go to: http://www.bp.com/webcast)

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

Last Updated: April 28, 2009 03:00 EDT 

Bloomberg Article

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