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BP, Oxy Earnings Strong; Gas Output Mixed

BP plc and Occidental Petroleum Corp. on Tuesday posted strong 4Q2005 and year-end earnings on high commodity prices, with BP earnings up 22% and Occidental's profits up 55% in the quarter. BP's worldwide oil and gas production was down about 2% for the quarter, with its U.S. natural gas output battered by ongoing Gulf of Mexico repairs, while Occidental's domestic gas output rose on its acquisition of Vintage Petroleum Corp.

London-based BP posted a 22% hike in 2005 profits, but reported weaker-than-expected 4Q earnings from ongoing storm repairs in the Gulf of Mexico and one-time charges in its refining unit. Net profit for the quarter was $3.685 billion, up from $3.010 billion in 4Q2004, while net profit for the year rose to $22.341 billion, up 31% from $17.075 billion in 2004.

Despite the high numbers, the second-largest major behind ExxonMobil Corp. failed to hit analysts' targets. It tempered the report with a strong reserve replacement record and the promise to return up to $65 billion to shareholders through dividends and buybacks in the next three years if commodity prices remain high.

Within BP's Exploration and Production unit, quarterly profit was hurt by about $950 million in "opportunity losses caused by the hurricanes" and net nonoperating charges of $979 million, primarily from losses on the value of overseas natural gas contracts. BP's output averaged 4.022 million boe/d in the quarter, slightly lower than the 4.095 million boe/d in 4Q2005.

In the United States, gas production in the quarter fell to 2.359 Bcf/d from 2.651 Bcf/d in 4Q2004, and was down sequentially from 3Q2005's 2.456 Bcf/d. For the year, domestic gas output fell to 2.547 Bcf/d from 2.748 Bcf/d in 2004.

CEO John Browne said during a conference call the company is forecasting 2006 output to range between 4.1-4.2 million boe/d. With more than 20 new projects due on stream in the next three years, and assuming the same level of oil and gas prices (oil ranging around $40/bbl), Browne said the annual rate of increase should continue at about 4% to 2010.

"Based on our proven track record, we should add an extra 10 billion barrels to our resource base from our existing exploration portfolio," Browne said. "It is the quality and magnitude of this resource that underpins our expectation of continued strong growth in output beyond 2010."

Dividends and share buybacks totaled $19 billion for 2005, and Browne said BP's dividend policy remained unchanged, as did its target to return to shareholders all free cash flows in excess of investment and dividend needs.

Browne also denied a report that the company is considering a bid for Spanish-based Repsol YPF SA -- or anything else in the near future.

"We don't need to acquire anything," Browne said. "It's not a good idea to add poorer assets to a strong base."

Los Angeles-based Occidental reported 4Q net income jumped 55% to $1.152 billion ($2.84/share), compared with $742 million ($1.86) in 4Q2004. Net income for 2005 was $5.281 billion ($13.09/share), more than double the $2.568 billion ($6.49) reported in 2004.

CEO Ray R. Irani said last year was notable "for a number of important achievements that we expect to contribute to future production and earnings growth." Among other things, Occidental enhanced its position in the Permian Basin in Texas and New Mexico through a series of producing property acquisitions, including its takeover of Vintage Petroleum Corp.

Quarterly worldwide production averaged 589,000 boe/d, an increase of 4.8% sequentially from 3Q2005, and up from 558,000 boe/d in 4Q2004. In the United States, quarterly gas output rose to 572 MMcf/d from 499 MMcf/d in 4Q2004, with most of the increase attributed to the Vintage acquisition. For the year, domestic gas output rose to 553 MMcf/d from 507 MMcf/d.

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