BP's 2Q Profit Rises 28% On Higher Oil Price

By Benoit Faucon
Dow Jones
Jul. 31, 2008

LONDON -(Dow Jones)- BP PLC (BP) Tuesday posted a 28% rise in second-quarter net profit, as the company captured more gains from skyrocketing oil prices through stable oil production and increased refining capacity.

The U.K. oil major posted a net profit of $9.47 billion for the three months ended June 30, or 49.8 cents a share, up from $7.38 billion, or 38.2 cents a share, a year earlier.

The result shows that a corporate turnaround started last year by Chief Executive Tony Hayward is bearing fruit. It also comes as a relief for investors as the U.K. oil giant is embroiled in a bitter dispute over control of its Russian oil and gas joint venture TNK-BP Holding (TNBP.RS).

Second-quarter revenue was up 52% at $110.9 billion, compared with $73.1 billion a year earlier.

By comparison, BP's quarterly revenue is now bigger than Kazakhstan's annual gross domestic product, which stood at $103.8 billion in 2007.

BP's numbers conform to International Financial-Reporting Standards, which differ from U.S. generally accepted accounting standards.

BP's quarterly replacement cost profit stood at $6.85 billion, up 6% from $ 6.49 billion for the same period a year ago. Analysts had expected the figure would be $7.82 billion.

The replacement cost profit was negatively impacted by fair value losses on the value of oil, gas and products contracts derivatives, which amounted to $ 2.08 billion. BP didn't provide a comparative number for the same period last year.

Peter Hutton of NBC Stockbrokers, said the results were solid, but "not the blow away (seen in) the first quarter. Hutton has an accumulate rating and a 620 pence target price.

BP's CEO in October launched a wide-ranging restructuring to trim costs and reduce bureaucratic inefficiencies. As a result, the U.K. oil giant has stabilized its oil and gas production and moved beyond years of problems at its U.S. refining business.

Production in the second quarter was broadly flat versus the same period last year at 3.83 million barrels of oil equivalent a day. Lower entitlements in production-sharing agreements offset the ramp up of new projects.

The stable output enabled BP to capture gains from higher oil prices, receiving on average $110 a barrel for its hydrocarbon liquids in the second quarter, primarily crude oil. That compares to the $63-a-barrel average it received for its liquids in the same period last year.

BP's U.S. refining operations have started to recover as the company ramps up crude oil throughput, following a 2007 fire at its Whiting, Ind., refinery and an explosion that killed 15 workers at its Texas City, Texas, refinery in 2005.

Refining throughputs for the quarter averaged 2.24 million barrels a day, compared with 2.13 million barrels a day for the same period last year.

BP said its Whiting refinery had restored its full clean-fuel capacity of 360, 000 barrels a day on March 21, and its Texas City refinery restored full crude capacity and the majority of its economic capability.

"The residue hydrotreater at Texas City is being commissioned with the first train having started up in mid-July," BP said.

But the company warned that "refining margins in the third quarter to date remain lower than the second quarter and substantially below the 2007 level."

Higher energy costs, especially in the U.S., ate into refining earnings.

Refinery maintenance activities will be higher in the third quarter than in the second, BP said.

At 0725 GMT, BP shares were up 11.3 pence, or 2.21% higher, at 532 pence.

Shares are down 13% since the beginning of the year, however, because of uncertainties over the future of TNK-BP.