BP Profit Rises to a Record on Oil Prices, Refining

Bloomberg
Jul. 25, 2006

July 25 (Bloomberg) -- BP Plc, Europe's biggest oil company, reported a 30 percent jump in second-quarter profit to a record as crude prices surged and refining earnings increased.

Net income rose to $7.27 billion, or 35.6 cents a share, from $5.6 billion, or 25.9 cents, a year earlier, the London-based company said today in a statement. Revenue climbed 24 percent to $72.4 billion.

Chief Executive Officer John Browne today said he will boost 2006 capital spending by as much as $1 billion to $16 billion to raise production and gain ground on bigger rival Exxon Mobil Corp., which plans to spend $20 billion. His target to increase output 4 percent a year is being tested by a yearlong delay in the start of the Thunder Horse platform in the Gulf of Mexico.

BP is ``struggling to capture the benefits of the stronger oil price background,'' said Ivor Pether, who helps manage about $12 billion at Royal London Asset Management, including BP shares. The shares are ``dull'' today partly because the profit gains ``are not down to exceptionally good performance'' from the company's units.

Shares of BP slipped 0.1 percent to 633 pence as of 3:32 p.m. in London, valuing the company at 125.9 billion pounds ($232 billion). BP said the start of its $1 billion Thunder Horse platform would be delayed until next year. It was initially forecast to start late 2005.

Output Decline

BP shares have added 2.3 percent this year, less than a 17 percent increase by Exxon Mobil and a 4.5 percent gain in Royal Dutch Shell Plc's stock.

Second-quarter oil and gas output fell 2.3 percent from a year earlier, the fourth consecutive decline in production, BP said today.

BP's 17.6 billion barrels of oil and gas reserves are valued at $13.21 each, according to data compiled by Bloomberg. That's less than for Exxon Mobil, whose 21.6 billion barrels are valued on the stock exchange at $18.27 each.

Browne, 58, said he plans to retire when he reaches 60 in 2008 and hand over to one of several candidates.

``There are more than three,'' he said in an interview today in London.

Chairman Peter Sutherland asked Browne to make clear he will retire in 18 months, the Financial Times said today, citing an unidentified person close to the board. Browne is ``very upset'' and is resisting Sutherland's demand, the newspaper said.

`No Rift'

Browne today denied there was a falling out with the chairman. ``There is no rift,'' Browne said.

Browne oversaw BP's acquisition of Amoco Corp. in 1999 and Atlantic Richfield Co. in 2000. He established a Russian joint venture, OAO TNK-BP, in 2003, allowing BP to surpass Shell in production and market value.

Sutherland, who's also chairman of Goldman Sachs Group Inc.'s international unit, will help ensure a smooth succession, said Michael O'Sullivan, an equity strategist at State Street Global Markets.

``Under normal circumstances if John Browne wasn't balanced by a very, very strong chairman, someone like that who's been very, very successful could have a stronger hold on the company and there could be potential corporate governance issues,'' O'Sullivan said.

It would be an ``awful shame'' to lose Browne, said Neil McMahon, an analyst at Sanford C. Bernstein in London, who rates BP stock ``market perform.''

Exploration & Production

``Even if asked, I wouldn't stay on'' beyond 2008, Browne said today in a meeting with reporters in London. Browne said he won't join the company's board, or take an advisory role.

BP's exploration and production unit increased profit 32 percent to $7.8 billion from $5.9 billion a year earlier, the company said in today's statement. Refining and marketing profit jumped 46 percent to $1.86 billion from $1.27 billion.

The company's 2006 capital expenditure would rise partly because of ``sector specific inflation,'' he said.

Profit before one-time items and changes in the value of oil inventory was $6.11 billion, more than the $5.97 billion median estimate in a survey of 11 analysts by Bloomberg.

The company boosted exploration and production profit by a third in the second-quarter as operating earnings from its Russian venture climbed 18 percent.

Oil prices in New York surged 33 percent from a year earlier to average $70.66 a barrel in the second quarter.

Texas City

Hurricanes on the U.S. Gulf Coast last year idled as much as 29 percent of the nation's refining capacity, pushing fuel prices to records. BP's Texas City refinery, damaged last year by hurricanes and an explosion that killed 15, cost it $650 million in lost profits in the first quarter.

BP's $1 billion investment in the initial public offering of OAO Rosneft may enhance the relationship between Europe's largest oil company and Russia, Browne said today.

Profit at the six biggest publicly traded oil companies by sales probably jumped 23 percent to $36 billion in the quarter, based on JPMorgan Chase & Co. estimates. That's more than Venezuela's gross domestic product in the same period. Companies benefited from near-record prices, bolstered by the standoff over Iran's nuclear program and cuts to Nigerian supplies.

Shell, the second-biggest European oil company, will probably say July 27 that it earned $6.2 billion, a 19 percent jump from $5.2 billion a year earlier, a survey of 10 analysts found. Shell, based in The Hague, declined to comment.

Exxon Mobil

Irving, Texas-based Exxon Mobil, the largest publicly traded oil company, is expected to say on the same day that second- quarter profit climbed 30 percent from a year earlier, to $9.92 billion, according to the average estimate from 21 analysts surveyed by Thomson Financial.

Browne, who has said oil will fall to $40 a barrel, said in February he would return $65 billion to investors over three years should crude stay above $60 a barrel.

Of the 30 analysts that have rated BP in the past three months, 20 recommend investors ``buy'' the shares. Seven say ``hold'' and three ``sell,'' according to data compiled by Bloomberg.

BP raised its dividend to 9.825 cents a share compared with 8.925 cents a year ago.