BP's 164% Boost in 2Q Profit Keyed to Prices, Cost Savings
BP Amoco, the last of the big three majors in the oil and gas
industry to report second quarter earnings, last week revealed that
like those that have already made their earnings public, the
London-based giant had record results, posting a 164% increase to
the bottom line.
CEO John Browne said that the earnings surge was keyed to three
things: strong energy prices, cost savings throughout the company
and investments and discoveries that are hitting or exceeding
"These results represent the cumulative impact of the progress
we've made over the last few years.growth in volume and, equally
important, growth in total productivity resulting from the way we
work," Browne said.
The earnings beat analysts' forecasts, with net profit standing
at $3.670 billion. It also represented a 164% increase from the
$1.367 billion in second quarter 1999. Analysts had predicted
replacement cost profits, which is how BP values its supplies, to
be in the range of $3.3 billion and $3.5 billion.
The strong earnings report followed an annual strategy meeting in July, when
BP announced it was finally settling down after tumultuous growth in the past
18 months, and would move toward volume growth after spending two years in
cost-cutting and acquisitions (see NGI, July 17).
At the July meeting, Browne predicted that by moving from its "investment
phase," which had slowed earnings growth for 18 months, BP will now boost
its capital spending 13%, giving investors a 10% return on investment for
the next three years.
BP's second quarter earnings are the first to include
contributions form Atlantic Richfield Co., a deal BP finalized in
April. The amortization of goodwill from the ARCO purchase
contributed $302 million in the second quarter. Officials said that
the combined cost structure of the two companies was $1 billion
lower than a year ago, which excluded the divestiture of ARCO's
Alaskan assets. It also represents half of the targeted annual $2
billion cost savings from the merger. By 2001, BP has set a total
savings goal of $5.8 billion, with $4.7 billion or 80% targeted by
the end of this year.
"Overall, the outlook in the near term remains broadly
positive," said Browne.
In the second quarter, BP continued its divestment of non-core properties,
most significantly, disposing of its interest in Altura Energy (see NGI, March
13). It also purchased an 18.5% shareholding in GreenMountain.com, a consumer
marketer (see NGI, May 8). Most profitable for
BP in the second quarter was in its exploration and production division, which
saw earnings rise 143% to $3.627 billion, with most of the strong growth in
the gas volumes. Refining and marketing rose 150% to $1.482 billion. Profits
in gas and power were actually down, standing at $26 million compared with
$38 million a year ago. BP said that marketing margins "came under pressure
from increased product prices," but its gas sales volumes actually increased
Carolyn Davis, Houston