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BP Profit Declines on Plunging Oil, Refining Margins

Bloomberg

By Eduard Gismatullin

July 28 (Bloomberg) — BP Plc, Europe’s second-biggest oil company, reported a 53 percent drop in profit as the recession dragged down energy prices and cut demand for fuel.

Second-quarter net income fell to $4.39 billion from $9.36 billion in the year-earlier period, London-based BP said today in a statement distributed by the Regulatory News Service. Excluding one-time items and inventory changes, earnings beat analyst estimates.

BP, the first of Europe’s oil majors to post earnings, is cutting costs and boosting output almost two years into a turnaround led by Chief Executive Officer Tony Hayward. The explorer expects to increase production this year after ramping up operations in the Gulf of Mexico.

“They can’t do very much about the oil price, that’s to some extent out of their control,” said Colin Morton, who is part of a team that manages $2 billion at BWD Rensburg Ltd. in Leeds, U.K. “But what they can control is making sure that they run all of their businesses as well as possible.

U.S. oil futures averaged $59.79 a barrel in the second quarter, 52 percent lower than a year earlier, while gas futures slumped 67 percent.

Adjusted earnings were $2.94 billion, beating the $2.82 billion median estimate of 17 analysts compiled by Bloomberg.

Shell, Exxon

Royal Dutch Shell Plc, Europe’s biggest oil producer, may say July 30 that adjusted earnings fell 69 percent to $2.42 billion, a survey of 17 analysts showed. Exxon Mobil Corp., the largest U.S. oil company, releases results the same day and is expected to post adjusted earnings per share of 98 cents, according to the average of 16 estimates.

BP added 1.6 percent to 519 pence in London trading yesterday. The stock is down 1.3 percent this year, compared with an 11 percent decline for Shell.

Of the 43 analysts tracked by Bloomberg who cover BP, 29 recommend buying the shares, 10 advise holding the stock and four say “sell.

Refining margins, the profit from turning crude into fuels such as gasoline and diesel, slipped about 40 percent in the second quarter from a year earlier, according to BP’s Web site. The company’s Global Indicator Margin, a broad measure of refining profitability, slid to $4.98 a barrel from $8.25.

The biggest drop in fuel demand in almost three decades has prompted oil companies to shelve new refining projects. BP and Irving Oil Corp. canceled plans last week to build a second refinery in St. John in the Canadian province of New Brunswick.

Thunder Horse

In an interview last month, Hayward said BP expects to increase output this year. “We have a lot of momentum in oil production, more than anyone else at the moment,” he said.

BP became the largest oil and gas producer in the Gulf of Mexico after boosting output from the Thunder Horse platform and bringing online the Dorado and King South fields.

BP reversed two years of falling output in 2008, when total production rose to 3.8 million barrels of oil equivalent a day. Total oil and gas production in the second quarter increased 4 percent to 4.005 million barrels of oil equivalent a day from a year earlier.

“BP stands out among the majors with the Thunder Horse ramp-up and lower exposure to gas seasonality,” Mark Bloomfield, a London-based analyst at Citigroup Inc., said before the earnings were released.

First LNG

BP reinforced its Asian liquefied natural gas business when the first LNG cargo left its Tangguh plant in Indonesia on July 6. It aims to increase crude and gas production through 2020 from existing reserves.

On June 30, BP and China National Petroleum Corp. were awarded an oil-field development contract by Iraq in the nation’s first international tender for more than 30 years.

In October 2007, Hayward pledged to close an operational gap with rivals and regain investor confidence after a fatal explosion at a U.S. and delays in starting projects.

BP named Ericsson AB Chief Executive Officer Carl-Henric Svanberg on June 25 as a replacement for its chairman Peter Sutherland. He will join BP’s board as a non-executive director on Sept. 1 and take over as chairman at the end of the year.

To contact the reporter on this story: Eduard Gismatullin in London at [email protected]

Last Updated: July 28, 2009 02:17 EDT

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