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Thunder Horse Production Delayed, But BP Reports Solid Second Quarter Results

BP said last week that the Thunder Horse platform, which is located in the Mississippi Canyon area of the Gulf of Mexico, is unlikely to begin commercial production before the end of 2005. The platform, which was expected to start producing a large amount of gas and oil later this year, was found listing 20 degrees following Hurricane Dennis' trip through the Gulf earlier this month.

It took a week for a team of workers from BP, Smit International, the Minerals Management Service, the U.S. Coast Guard and other organizations and companies to stabilize the platform, which is the largest semisubmersible platform in the world with a nameplate capacity for 250,000 bbl/d of oil and 200 MMcf/d of gas. It was expected to reach those production levels over the course of the first 12 months of commercial operation.

"We had only expected Thunder Horse to come on stream right at the end of 2005," said BP CEO John Browne. "That is unlikely."

One of BP's drilling contractors said the damage to the platform was not as extensive as once feared and the platform may be prepared to begin production within the first half of next year, but BP could not confirm that projection.

However, BP reiterated its forecast of 5% annual production growth through 2010. The company also announced that its quarterly profits rose 29% on the strength of world oil prices. But BP said it was taking a $700 million charge to settle compensation claims associated with the Texas City refinery explosion in March that killed 15 people. Its problems with the Texas City refinery continued last week with another fire on Thursday night. No injuries were reported.

BP's net profit for the second quarter rose to $5.66 billion, up from $4.38 billion during the same quarter in 2004. Revenue jumped to $88 billion from $71.1 billion.

BP's worldwide oil production rose 5% to 2,437 Mbbl/d and its crude oil price realizations averaged $47.79/bbl compared to $34.47/bbl during the same quarter last year. Its worldwide natural gas production rose 2.8% to 8,661 MMcf/d and worldwide gas price realizations averaged $4.38/Mcf compared to $3.68/Mcf in 2Q2004.

However, its U.S. gas production fell 2.3% to 2,727 MMcf/d from 2,790 MMcf/d in 2Q2004. U.S. gas price realizations jumped to $5.83/Mcf from $5.11 last year. Gas price realizations in the rest of the world averaged only $3.20/Mcf compared to $2.54/Mcf in 2Q2004.

The company had one-time item charges of $826 million, including $700 million for settling claims arising from the Texas City, TX, refinery explosion on March 23 that killed 15 workers.

Browne warned that the second six months of the year may not be as profitable as the first half. "The outlook for retail margins remains uncertain with continuing crude and product price volatility," he said. "Rising product prices have dampened margins over the past few weeks and have contributed to a weak start to the third quarter."

However, he said, first half world economic growth was sustained near its 10-year average of 3%, and is expected to remain so for the rest of 2005.

"Oil prices averaged $51.63/bbl (Brent) in the second quarter, around $4.00/bbl higher than in the first quarter," said Browne. "OECD commercial inventories have risen at above normal seasonal rates in the second quarter and remain above five-year average levels. Prices remain supported by strong world oil consumption growth and limited spare oil production capacity.

"U.S. natural gas prices averaged $6.74/MMBtu (Henry Hub first-of-month index) in the second quarter, up by around $0.50/MMBtu versus the first quarter," he said. "Gas inventories remain above year-earlier and five-year average levels, but the surplus has been declining and the futures market continues to signal a supply-constrained market heading into the winter heating season."

Browne said the company's strategy is "unchanged...Our ability to capture the benefit of current prices and margin strength underpins continued dividend growth and further increases in share buybacks, which we expect to be at least $6 billion in the second half of 2005 subject to market conditions and constraints. Capital expenditure is expected to be around $14.5 billion for the year and around $15 billion in 2006."

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