BP’s Net Profit Rises

Wall Street Journal
April 27, 2011



LONDONBP PLC posted a 17% increase in net profit for the first quarter as higher oil prices helped to offset continued costs stemming from the Deepwater Horizon oil-spill disaster last year.

The U.K.-based energy giant said Wednesday net profit for the quarter was $7.12 billion, compared with $6.08 billion a year earlier. Total revenue for the quarter rose 18.7% to $88.31 billion from $74.42 billion.

Total oil and gas production, however, fell 11% to 3.58 million barrels a day. Asset salesaimed at covering some of the $41 billion costs resulting from the Gulf of Mexico disasterand the loss of production due to the continued drilling shutdown in the region accounted for the big drop in production.

But BP said its output was also weighed down by higher maintenance in the North Sea and Angola, and by an interruption in the Trans-Alaska oil pipeline. “The main impact by far on production is the Gulf Of Mexico moratorium,” a BP spokesman said. “There’s also higher turnaround activity that we’ve been doing as we go through the increased spending on safety, particularly in the North Sea.”

In the year since the Deepwater Horizon disaster, BP has re-emerged as a fundamentally different company: it is smaller than before, having already shorn some $22 billion of assets; and with a different strategic focus, looking to fresh opportunities abroad to underpin its future growth.

However, a key part of this new strategy already appears to be floundering, with a challenge to a key Russian deal.

BP’s $16 billion share-swap and exploration deal with Russian state-owned giant OAO Rosneft was blocked by an arbitration court last month following objections from BP’s partners in its TNK-BP joint venture, and the U.K. firm could be forced to pay substantial compensation for it to go ahead. TNK-BP is also scheduled to report earnings Wednesday.

BP didn’t receive a dividend from TNK-BP for the period, the first time it hasn’t received a payout from its Russian joint venture since the first quarter of 2009.

A BP spokesman said the decision to withhold the dividend was made by TNK-BP’s board. However its partners in the joint venture, the Alpha-Access Renova group, in April threatened to withhold dividend payments for the year.

Meanwhile, BP said its clean replacement cost of supplies, a keenly watched figure that strips out gains or losses from inventories and other nonoperating items, for the three months ended March 31 totaled $5.37 billion, compared with $5.65 billion for the first quarter of 2010.

The company booked additional costs related to the Gulf of Mexico spill of $400 million, citing an increase in the oil-spill response provision and expenses of the Gulf Coast Restoration Organization, which is managing beach and marsh cleanup.

“There were some quite hefty forecasts that BP could take the $41 billion [in spill charges to date] significantly higher,” but it only marked down an additional $400 million, said analyst Jason Kenney of ING. “There’ll be a sigh of relief on that one.”

The oil major’s diluted earnings per share were 37.42 cents, compared with 31.99 cents a year earlier. BP announced a dividend of seven cents per ordinary share expected to be paid in June. The equivalent amount in sterling will be announced on June 14.

BP shares closed at 464 pence Tuesday, 7% lower than at the start of January. The company’s stock has lost almost a third of its value since the U.S. accident last year.

James Herron in London contributed to this article.

~ by fredfelleman on April 27, 2011.

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