BP plc CEO Tony Hayward, who was tapped last year to lead the troubled UK-based major, called 2007 a year "which most of us will be glad to leave behind." He said BP's final quarter's profits were "very disappointing," but BP is making "good, step-by-step progress" to ramp up new oil and natural gas fields and trim excess overhead.
The largest natural gas producer in the United States posted a 53% jump in net income in 4Q2007 on higher oil prices. Profit reached $4.4 billion (23 cents/share), compared with $2.88 billion (15 cents) in 4Q2006. Revenue climbed 30% to $81.22 billion. However, replacement cost profit, which strips out changes in the value of oil and gas inventories, plummeted 24% to $2.97 billion, and for the full year, replacement cost profit dropped 22% to $17.3 billion.
"In a large company like BP, the numbers always appear very big in absolute terms," Hayward said during a conference call to discuss the results. "But we are judged by investors in relation to our peers. In that regard, our financial result wasn't good enough." He said the high oil prices couldn't overcome replacement cost profits because of the "disappointing performance from our U.S. refining operations, which we are steadily beginning to put right.
"The good news is that in the second half of the year there were the first signs of improvement across BP: we began to stabilize our operational performance and to resolve many of the issues we faced in the U.S. In 2008 we expect to build on that operational momentum and to begin to convert it into financial momentum, particularly in the second half of the year and into 2009."
BP reported that it replaced more than 100% of its oil and natural gas reserves last year. Output averaged 3.91 million boe/d in 4Q2007, which is 1.7% higher than in 4Q2006.
"We expect BP's overall oil and gas production to grow in 2008, although our exact net volumes will depend on how the crude price affects entitlements from production-sharing agreements," Hayward said.
BP's less-than-stellar income results followed a string of setbacks that damaged the company's reputation -- especially in the United States. There was the refinery explosion at its Texas City, TX, plant in 2005, which claimed 15 lives. There were the continuing oil leaks from its Prudhoe Bay operations in Alaska. And there was the delay in the ramp-up of BP's Thunder Horse platform in the Gulf of Mexico. BP's many mishaps led to the swift departure of former chief John Browne last May and Hayward's sooner-than-expected ascension.
Hayward, who had headed BP's exploration and production unit before becoming CEO, last October announced a major shake-up to reduce the management's complex structure and cut costs (see NGI, Oct. 15, 2007). Tuesday Hayward told energy analysts and investors on a conference call that BP spent $350 million on restructuring in 4Q2007 and will spend at least $1 billion more this year.
The restructuring, he said, will save an estimated $7-8 billion in overhead, lead to around 5,000 job losses and help offset industry cost inflation, which he said is now around 10%. By reducing overhead, Hayward estimated, BP could trim its costs overall by 15-20%.
"The steps we have already initiated will cut BP's head count by some 5,000 by the middle of next year ," said Hayward. "This is in addition to the 9,500 jobs that will move off the payroll as a result of franchising our U.S. convenience retail business."
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