BP 1Q Adj Net Pft Dn,

Watch out – last time BP had top cut costs, refineries blew up, pipelines spilled and EIS’s were not conducted. Fred

Wall Street Journal
April 28, 2009

4th UPDATE:

But Co Improves Operations
(Adds CFO comment.)
By James Herron
Of DOW JONES NEWSWIRES

LONDON (Dow Jones)–BP PLC (BP) Tuesday posted a 58.6% fall in adjusted net profit for the first quarter as a much lower average oil price more than offset rising production, but the company showed signs that its continuing operational turnaround is yielding results.

The U.K.-based energy giant comfortably beat analysts’ consensus by improving performance in its exploration, production and refining and marketing units, cutting costs and delivering a strong trading performance.

“Oil prices are expected to remain low, and our customers are facing tough business conditions,” Chief Executive Tony Hayward said in a note to BP staff seen by Dow Jones Newswires. “We need rapidly to bring our costs to a level that is compatible with a $50 (a barrel) world.”

“We are making good progress. Thanks to our continued focus on simplification and efficiency, cash costs in the first quarter of 2009 were more than $1 billion lower than in (the first quarter of) 2008,” and unit production costs were down 11%, Hayward said.

Total capital expenditure for the year is now expected to be less than the $20 billion estimate given at BP’s strategy update in March, but this will not adversely affect its forward production guidance of 1%-2% annual growth to 2013, said Chief Financial Officer Byron Grote. BP should also exceed its target of cutting costs by $2 billion this year, he said.

BP’s clean replacement cost net profit, which strips out inventory gains or losses and exceptional items, for the three months ended March 31 totaled $2.58 billion, compared with $6.24 billion for the first quarter of 2008.

This was above analysts’ expectations of $2.23 billion in a Dow Jones Newswires poll of six analysts.

The main reason BP beat consensus was that earnings were flattered by a big trading profit, said ING analyst Jason Kenney. Nevertheless, there is evidence of operational improvements upstream and downstream, and the company is undoubtedly making good progress on cost cutting, he said.

Grote said the trading gain was around $500 million higher than normal as the company benefitted from the steep contango in crude oil prices. He acknowledged this performance is unlikely to be repeated in subsequent quarters. During periods of steep contango, traders can make money buying oil, putting it into storage and selling it at a higher future price.

Total oil and gas production was 4.016 million barrels a day, a rise of 2.6% on the year due to the start up of the 300,000 barrels of oil equivalent per day Thunder Horse oil field in the Gulf of Mexico.

BP’s dividend for the quarter will be 14.0 cents per share, up 3.5% from 13.525 cents per share in the same period last year. With diluted earnings per share at 13.54 cents, BP is paying out more than 100% of its profits in dividends.

BP’s gearing, the ratio of net debt to net debt plus equity, rose four percentage points on the year to 23% as it increased borrowing to fund dividends. The company aims to keep its gearing in the 20%-30% range.

“If the oil price stays at $45-$50, rather than $55-$60, you’ve got to question the sustainability of that payout,” said Kenney. Although if BP can repeat its $1 billion reduction in cash costs in subsequent quarters it may be able to reduce its cash break-even cost of $60 a barrel, he said.

Total revenue for the quarter was down 46.7% to $48.09 billion.

Net profit was down 63.9% to GBP2.56 billion.

At 1440 GMT, BP shares were up 0.2%, or 1 penny, at 484 pence in a weaker market.

Company Web site: http://www.bp.com

-By James Herron, Dow Jones Newswires; +44 (0)20 7842 9317; james.herron@dowjones.com

~ by fredfelleman on April 28, 2009.

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