BP plc's quarterly profits fell by half from the same period a year ago, but the company still is managing to surpass cost-cutting targets and increase its oil and natural gas output, CEO Tony Hayward said last week. The company, however, doesn't think a global economic recovery -- or energy demand growth -- will happen this year.
The largest gas producer and marketer in North America reported a 53% drop in net profit in 2Q2009, clipped by lower commodity prices and weak refining margins. Net profit was $4.4 billion, down from $9.4 billion a year earlier. However, results rose sequentially from 1Q2009, when BP posted a net profit of $2.6 billion. Revenue for the period was down by half to $57 billion from $111 billion a year ago, but it climbed 18% sequentially from the first three months of 2009.
The London-based major is delivering a solid performance in a "very tough" environment, Hayward said.
"We are in turbulent times, volatile and uncertain," he said. "But we continue to steer a steady course through choppy waters. Two years ago we set out to restore our ability to compete more effectively with our rivals in the sector. The momentum we established in that process remains very powerful. Despite the current climate, we are making good progress in growing our upstream, turning around our downstream and driving cost efficiency across the group."
BP's cash costs fell by more than $2 billion in the first half of 2009, versus the same period last year.
"Back in February we reported our 2008 results against a backdrop of a deepening global recession and predictions of stagnant economic growth in 2009," said the CEO. "Today, available economic data and growth forecasts suggest the world economy will shrink in 2009 -- the largest decline since World War II.
As the world economy shrinks, the demand for energy also has fallen, said Hayward. Natural gas consumption in the United States "has fallen more than 3% year-on-year and industrial gas demand has fallen by 11%. U.S. production has continued to grow despite a significantly lower rig count, keeping U.S gas prices under pressure. European consumption is down more than 4% and falling demand in Asia has led to significant reductions in liquefied natural gas imports."
Lifted by key investments including North American natural gas and oil projects onshore and offshore, BP is increasing its global gas and oil output, a big turnaround from two years ago when production was failing to keep pace with capital spending. Hayward took over in mid-2007, and he shelved some plans not yet on the drawing board to focus on ramping up long-delayed projects (see NGI, Oct. 15, 2007).
The CEO's strategy appears to be working. BP's global gas and oil output in 2Q2009 rose 4.6% from the year-ago period to 4 million boe/d, mostly on the start-up of the 300,000 boe/d Thunder Horse Field in the deepwater Gulf of Mexico. Worldwide BP ramped up five major projects in 2Q2009.
However, BP will tread cautiously through 2009, said Hayward. The global economy "could stabilize this summer but any recovery, whenever it comes," is likely to be sluggish.
"The overall picture is of energy demand now stabilizing," said Hayward. But "at this point we see little evidence of any growth in demand and expect the recovery to be long and drawn out.
"So what does all that mean for BP? On the basis we're not counting on a recovery anytime soon, we will continue to balance the demands of today with our ongoing program of investment for the future. Our focus on self-help will both support short-term delivery and establish a strong platform for sustainable performance." BP expects to see "plenty more" savings in 2010 as general industry costs fall.
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