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BP Posts First Loss in Seven Years, Sees Weak Demand

Bloomberg

By Eduard Gismatullin and Fred Pals

Feb. 3 (Bloomberg) — BP Plc, Europe’s second-biggest oil company, posted its first quarterly loss in seven years and predicted demand for crude will continue to fall in 2009 as the global recession deepens.

The fourth-quarter loss was $3.3 billion, or 18 cents a share, compared with net income of $4.4 billion, or 23 cents, a year earlier, London-based BP said today in a statement. Excluding one-time items and gains or losses from inventories, earnings missed analyst estimates.

BP joins Royal Dutch Shell Plc, its larger rival, in reporting a loss following crude’s record plunge. Output at BP rose for the first time in three years as new projects, including the Thunder Horse field in the Gulf of Mexico, were ramped up. Refining availability jumped to a three-year high after the return of its two biggest U.S. refineries.

“Oil and gas production was actually up, which is good news,” Ian Henderson, who manages $7 billion in natural- resource assets at JPMorgan Chase & Co.’s asset management unit in London, said today in a Bloomberg TV interview. “The environment is very challenging.”

Excluding one-time items and gains or losses from inventories, profit was $2.6 billion. That missed the $3 billion median estimate of 10 analysts surveyed by Bloomberg News.

Shares Drop

BP rose 0.5 percent to 487.25 pence in London. The shares have lost 10 percent since crude futures slipped from a record $147.27 a barrel in July.

Chief Executive Officer Tony Hayward is adding production and refining capacity and cutting jobs to boost BP’s earnings, which have lagged behind rivals such as Exxon Mobil Corp. and Shell.

Shell had a quarterly loss of $2.81 billion, its first in 10 years, after the value of inventories fell. Exxon Mobil, the biggest U.S. oil company, reported earnings of $7.82 billion, beating analyst estimates as higher refining profit softened the impact of falling oil prices.

Global oil demand fell by around 500,000 barrels a day last year compared with 2007, BP said.

“With many economists now predicting no global economic growth in 2009, demand for oil will continue to fall,” Hayward told reporters on a conference call.

BP’s full-year net income was $21.2 billion, up from $20.8 billion in 2007. Underlying earnings for the whole of 2008 increased to $26.2 billion from $18.9 billion.

Total revenue slipped 25 percent to $60.94 billion in the latest quarter from a year earlier. Sales increased 27 percent in 2008 to $365.7 billion.

Dividend Raised

BP will pay a quarterly dividend of 14 cents, up from 13.5 cents in the same period a year earlier.

“Unless oil prices recover, the company will have to think very carefully about the extent to which it will be able to pay dividends” without increasing debt or cutting investment, JPMorgan’s Henderson said.

BP said earnings in the fourth quarter were affected by the “unprecedented volatility” of oil prices and exchange rates, including a $700 million loss at its Russian joint venture.

Crude futures tumbled by a record 56 percent in the fourth quarter. Hayward said last week that crude prices between $60 and $80 a barrel are “appropriate” to sustain investments. Oil prices traded at $40.83 today.

Of the 36 analysts that cover BP, 24 recommend buying the stock, 10 have “hold” recommendations and two advise clients to sell the shares.

Close Gap

Hayward said BP has closed about $2 billion of a “performance gap” with rivals in refining and marketing from last year.

“Full economic capability has been rebuilt at the U.S. Texas City and Whiting refineries and refining availability in the fourth quarter rose to 91 percent,” the company said.

BP’s Texas City refinery had been running at reduced capacity since 2005. The company shut the refinery in advance of Hurricane Rita in September 2005, eight months after an explosion that killed 15 workers. The refinery in Whiting, Indiana, has increased production since a fire in April 2007 shut down operations.

The Texas City plant can process 475,000 barrels a day of crude oil. The Whiting refinery can handle 420,000 barrels.

BP said its global refining availability rose to 91.4 percent in the fourth quarter, from 87.7 percent in the third quarter and 84 percent in the year-earlier quarter.

“I also envisage our refining availability will be materially higher this year than last,” Hayward said.

Higher Output

Crude and gas output increased to 3.838 million barrels of oil equivalent a day in 2008, from 3.818 million barrels a year earlier. Fourth-quarter production rose 1 percent to 3.945 million barrels of oil equivalent a day, compared with a year earlier.

“I expect our production to continue to grow this year,” Hayward said. “Exactly how much will depend on OPEC constraints, along with the oil price and its impact on production-sharing contracts.”

New oil and gas discoveries in Angola, Egypt, Algeria and the North Sea “will enable us to achieve a resource-to- production replacement ratio of more than 200 percent and reserves replacement of over 100 percent,” Hayward said.

BP will maintain investments excluding acquisitions between $20 billion and $22 billion this year.

The company plans to dispose of assets worth about $2 billion to $3 billion. BP spent a total of $30.7 billion last year, of which $21.7 billion was invested in projects, it said today.

Job Losses

Around 3,000 jobs were cut last year and BP said it’s poised to meet a company target of reducing the overall headcount by 5,000 by the middle of 2009.

Hayward said it would make more sense for oil majors to consider merging with state-owned companies than each other.

“I’m not certain that the industrial logic is terribly compelling” for a mega merger which wouldn’t boost underlying reserves, he said.

BP settled a dispute over the running of the company’s joint venture in Russia last year with its billionaire co-owners after Hayward agreed to replace TNK-BP’s CEORobert Dudley.

The accord left BP with its stake in the 50-50 venture intact while acceding to demands by the Russian billionaires — Mikhail Fridman, German Khan, Viktor Vekselberg and Len Blavatnik — for a more independent board. TNK-BP accounts for almost a quarter of BP’s global output and reserves.

TNK-BP reopened the search for a new CEO after shareholders halted talks with Denis Morozov, the former head of Russia’s biggest mining company. Hayward said BP will take its time to get the right candidate.

— With reporting by Mark Barton in London. Editors: Stephen CunninghamGuy Collins.

To contact the reporters on this story: Eduard Gismatullin in London at[email protected]Fred Pals in Amsterdam at[email protected]

Last Updated: February 3, 2009 11:37 EST

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