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BP's 164% Boost in 2Q Profit Keyed to Prices, Cost Savings

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 targets.

"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 51%.

Carolyn Davis, Houston

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