BP's record profit disappoints City

· £11bn profit overshadowed by rivals' performance
· Lord Browne defends 'quality of asset base'

Mark Milner, industrial editor
Wednesday February 8, 2006
The Guardian


BP yesterday announced record profits of $19.3bn (£11bn), driven by the high oil price, but the 25% increase fell short of City expectations and the world's second largest oil firm by market value saw its shares fall in response.
Weakness in the final quarter of 2005 left BP's refining and marketing business $160m in the red - compared with its $1.3bn profit in the last three months of 2004. The company blamed a combination of its Texas City refinery being closed, the $500m spent on boosting efficiency in Europe, and the changes to the way BP has to account for long-term North Sea contracts.

BP's record profit disappoints City

· £11bn profit overshadowed by rivals' performance
· Lord Browne defends 'quality of asset base'

Mark Milner, industrial editor
Wednesday February 8, 2006
The Guardian


BP yesterday announced record profits of $19.3bn (£11bn), driven by the high oil price, but the 25% increase fell short of City expectations and the world's second largest oil firm by market value saw its shares fall in response.
Weakness in the final quarter of 2005 left BP's refining and marketing business $160m in the red - compared with its $1.3bn profit in the last three months of 2004. The company blamed a combination of its Texas City refinery being closed, the $500m spent on boosting efficiency in Europe, and the changes to the way BP has to account for long-term North Sea contracts.


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Lord Browne, BP's chief executive, was upbeat about the results, which saw the group deliver record cash flow as well as record profits, slash its gearing to 17%, and for the 13th successive year replace 100% of its production with new proven reserves. "Our 2005 result was a record; this reflects the quality of our asset base and operations. Strong operating cash flows and ... disposals have enabled record distributions to shareholders."
Over the past three years BP has returned $40bn to shareholders, a return that could rise to up to $65bn in the next three years.

However, Richard Hunter, equities head at the stockbrokers Hargreaves Lansdown, said: "BP's profits of £11bn underperformed both Royal Dutch Shell's £13bn and Exxon's £20bn, not to mention market expectations." The combination of the reserves replacement programme and the expected distribution to shareholders meant, however, that the market consensus remained "overwhelmingly positive towards what is still seen as the pick of the oil majors".

The level of the profits enjoyed by oil companies has attracted increasing criticism and yesterday Tony Woodley, general secretary of the Transport & General Workers Union, called for some of the money to be used to support the Finance Assistance Scheme, the pensions lifeboat.

Mr Woodley said: "At a stroke we could bolster that scheme and sort out the injustice of decent people having lost their pensions through no fault of their own. The oil companies' windfall should help those people, for we can be sure the shareholders will be looked after anyway."

Earlier Lord Browne had rejected suggestions that the firm was making excess profits. The money BP made went either to investment in the business or to shareholders. "BP distributes £1 out of every £6 that goes into UK pension funds via the dividend. That's rather important." While 96% of BP's profits were generated outside Britain, more than half the company's shares were held in the UK. Yesterday the shares fell 18p to 647.5p.

Lord Browne was scathing about the accounting changes the company had had to bring in under international financial reporting standards. "Some would argue that IFRS neither produces a record of the accountability of management nor a measure of the changes in the economic value of assets and liabilities. I would agree with them. What IFRS actually does is to make our results more difficult to understand."

BP believed there was good medium-term support for oil prices to stay above $40 a barrel and that the supply industry's vulnerability to "significant supply disruption" remained high. BP's strong portfolio of assets meant it would continue to increase production organically at that price level, though Lord Browne appeared unenthusiastic about acquisitions.

Backstory

With the other big oil firms, BP may be cashing in on high prices but its chief executive, Lord Browne, insists 2005's record performance had its origins in days of much lower prices. Brent crude averaged $54.42 a barrel in the final quarter of last year, 42% higher than in the same period in 2004. Prices below $20 a barrel, as in 2001 and 2002, seem a distant memory. But Lord Browne says the results are rooted in that era of low oil prices, and through sustained investment and performance improvements.





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