/ 23 October 2007

Troubled energy giant BP rocked by profits slump

British energy giant BP, reeling from fatal safety errors and a boardroom scandal, said on Tuesday that third-quarter profits slumped owing to lower output, weak United States gas prices and refinery outages.

Net profit on a replacement-cost basis plunged 44,5% from a year earlier to $3,87-billion in the three months to September.

The replacement-cost figure, which excludes the effect of changes in the value of oil and gas inventories, is closely watched by the market.

BP, which kicked off the quarterly earnings season for the European oil sector, added that production fell 4% to 3,65-million barrels of oil equivalent per day (boepd) during the reporting period.

The world’s third-biggest energy group is struggling to recover from the fall-out of a deadly Texas City refinery explosion in 2005, which killed 15 people and raised serious safety concerns across its US facilities.

Analysts had expected downbeat results after new chief executive, Tony Hayward, was recently quoted as saying that BP’s third-quarter performance would be “dreadful”. He also unveiled a wide-ranging overhaul earlier this month.

Hayward took over as chief executive in July. His predecessor, John Browne, resigned following revelations that he lied to a high court judge over how he had met his gay partner of four years.

BP said on Tuesday that it was affected during the third quarter by missing revenues from its Texas City and Whiting refineries in the United States. But it added: “We expect to restore both refineries to their full crude capacity and flexibility in the first half of 2008.”

The group’s exploration and production unit saw profits slide 36% to $6,34-billion due to lower volumes, weak US gas prices and higher costs.

Profits at refining and marketing tumbled almost 75% to $376-million in the same period, as the division was rocked by refinery outages and falling refining margins, BP added.

However, the company said 2007 production was forecast at 3,8-million to 3,9-million boepd, in line with previous guidance.

Earlier this month BP unveiled a major restructuring to breathe new life into the troubled energy giant and Hayward has warned that job losses will be inevitable.

The group will comprise two divisions — exploration and production, and refining and marketing — compared to three currently. BP’s gas, power and renewables unit will be absorbed into the other two units.

Richard Hunter, equities analyst at stockbroker Hargreaves Lansdown, said BP could have now turned the corner.

“The difficulties in the production and refining areas have, as expected, materially affected profits for the quarter,” he noted.

“This being said, the outlook for the remainder of the year looks promising.” — AFP