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THE WALL STREET JOURNAL: BP's Profit Jumps 22% Despite Output Shortfalls

February 7, 2006 3:51 a.m.
LONDON — BP PLC said the sky-high energy prices and robust refining margins that have buoyed the rest of the oil industry sent fourth-quarter earnings up by 22%, more than making up for poor operational performance at the company's refining and marketing businesses.
BP, the world's second largest publicly traded oil company by market capitalization behind Exxon Mobil Corp., said higher oil and gas prices lifted profitability in its core exploration and production businesses, despite production shortfalls related to the hurricanes last year in the Gulf of Mexico. BP and its peers suffered considerable damage to production platforms and distribution networks as a result of the storms.
The storms also knocked out significant refining capacity in the Gulf Coast, and BP has been hobbled in particular by the delayed re-start of its Texas City refinery. The plant was the site of an explosion last March that killed 15. BP shut down the plant ahead of Hurricane Rita several months later, but has also used the down time to focus on safety issues at the plant.
BP said Tuesday it planned to restart production sometime in the first quarter of this year. BP had warned of significant lost profit because of the plant's shutdown, and said Tuesday that “opportunity” losses related to troubles at Texas City was some $1.8 billion for all of 2005.
BP said net income for the quarter ended Dec. 31 was $3.69 billion, or 17.68 cents a share, up from $3.01 billion, or 13.75 cents a share, a year earlier. BP's revenue rose 22% to $65.9 billion from $54.06 billion. BP's numbers conform to international financial-reporting standards, which differ from U.S. generally accepted accounting principles.
The quarterly results reflected a net charge for special, non-operational items of $553 million, including the mark-down of certain contracts related to new international accounting standards. That compares to a $1.26 billion charge a year ago.
The company's core exploration and production unit posted pre-tax profit some 38% higher than the year earlier, stripping out the change in the value of inventories, despite suffering production disruptions following hurricanes last year in the Gulf of Mexico.
BP said total oil and gas production was down almost 2% in the quarter at 4.02 million barrels of oil equivalent a day from 4.095 million a day a year earlier.
The company said its closely watched reserve-replacement ratio – the rate at which a company finds new reserves of oil and gas to replace the energy it pumps out of the ground each year – was 95% using U.S. Securities and Exchange Commission guidance. Using British accounting guidelines, BP's reserve replacement rate was 100%. Companies typically try to achieve at least 100% reserve replacement to satisfied investors worried about future production growth.
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