BP to make biggest profit in UK history despite hurricanes
$1bn damage offset by soaring oil prices
· Company says forecourt margins are wafer thin

Terry Macalister
Thursday January 12, 2006
The Guardian

The fourth quarter trading statement was seen as a mixed bag by the City, allowing the company's shares to tread water at 643p. But Britain's biggest company by market capitalisation felt the continuing aftermath of Katrina and other hurricanes with output down on a year ago. BP produced an average of 4.01m barrels of oil equivalent per day in the latest quarter, compared with 4.09m during the same period 12 months earlier.

That was at the lower end of the 4.0m to 4.2m which had been expected by equity analysts and meant the average production for last year would be 4m barrels per day, below the 4.1m to 4.2m targeted by the company.

The Texas City refinery had been partly put out of action by an explosion for which BP took responsibility, but the hurricanes knocked it out completely with flood damage. The cost to this plant alone was $400m in the fourth quarter.

BP said yesterday that the total cost of hurricane damage across its facilities, in terms of lost profits and repairs, would amount to over $1bn in the three months. Barrels lost in the Gulf of Mexico hit the company particularly hard because they are among the most profitable in BP's global portfolio. There was no statement on when the Texas City plant would restart and some analysts believed it would not be before April.

While upstream production of crude and gas was lower than expected, there was also a disappointing performance from its downstream refinery division with oil product prices clattering downwards after a post-Katrina spike. Fuel marketing margins improved.

But BP will argue that its profits on the UK forecourt remain wafer thin, heading off potential criticism next month from motorists angry at the scale of group profits. Neither will BP have been able to benefit from soaring UK spot gas prices in recent weeks because the company sells its gas wholesale on long-term contracts. BP will have to take a $1.3bn accounting charge on these gas contracts because of the way they are treated under the IFRS accounting rules now adopted by BP.

The company also plans to take a $400m charge in the fourth quarter to deal with restructuring of its European downstream operation.

Bruce Evers, analyst with Investec Securities, described the trading statement as a "mixed bag" but said the overall performance of BP remained strong. "The likely profit figures certainly put into perspective Gordon Brown's latest windfall tax on the oil industry," said another analyst in a reference to the November statement from the chancellor which will cost BP an extra £350m annually.

The £2bn hit on Britain's North Sea operators brought a furious reaction from the UK Offshore Operators Association, which represents BP and others. The association said the move was unjustified and would chase investment away from Britain.



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BP has taken a billion-dollar battering from US hurricanes in the fourth quarter but is still on track to announce annual profits of over $21bn (£12bn) next month - the biggest in British corporate history.

The oil and gas group disclosed yesterday that it would take a $400m charge at its Texas City refinery alone but its 2005 profits would still be around a quarter better than in 2004, on the back of soaring oil prices. BP's profits in total could pay off a third of Britain's latest budget deficit and would be equal to the entire gross domestic product of Iraq in the latter days of Saddam Hussein.