Despite higher commodity prices and a contribution from Russian exploration, BP plc’s earnings fell flat in the final quarter of 2003, pulled down by a weak U.S. dollar and restructuring charges. Quarterly profit was $2.67 billion, up 1% above $2.64 billion reported a year ago, but below Wall Street’s forecast of $3.01 billion.

However, oil and gas production worldwide grew by 9% to 3.936 MMboe/d in the quarter. For the year, production averaged 3.6 MMboe/d. The company also scored on its gas, power and renewables sales. In the United States, BP sold 12.12 Bcf/d, up from 11.8 Bcf/d in 4Q2002. Its total gas sales worldwide were 28.3 Bcf/d, compared with 25.4 Bcf/d a year earlier. For the year, BP averaged 26.2 Bcf/d in sales, up from 21.6 Bcf/d in 2002.

“Last February we said that our underlying production — correcting for the impact of acquisitions and divestitures — would grow at 0-3% over 2002,” said Lord John Browne, CEO of BP, during a conference call with analysts Tuesday. “We estimate that it has grown by 0.5% in spite of our production having been reduced by around 30 Mboe/d as a result of the price impact on volumes…which in aggregate represent about 10% of our production. We regard this outcome as satisfactory, albeit, not spectacular. Decline rates of existing producing assets are in line with our forecasts. We are now particularly focusing on improving operational up time in our North Sea operations.”

Browne said that “when all the changes in the portfolio are included,” BP’s “indications for production capacity of last February are still satisfactory. Our presenting expected outcome is at the low end of the range.” He told analysts that BP expects production capacity from its current asset portfolio to increase to more than 4 MMboe in 2004, which would be 10% higher than 2003. “The estimate is, of course, subject to revision in the event of further portfolio changes., and as we gain more experience with our Russian interests.”

Minus acquisitions and asset sales, BP replaced 122% of its 2003 production with 1.34 Bboe/d, which will be booked from new discoveries, extensions and improved recovery techniques from existing reservoirs. The company noted that it was the eleventh year for it to exceed reserve replacement production. Additions to year-end reserves were 158% of 2003 production.

BP reports profit on a pro forma basis, which excludes special items, goodwill and gains or losses from the changing value of its hydrocarbon inventory. The London-based major’s fourth quarter “historical cost” profit, which is done according to U.K.’s generally accepted accounting principles, jumped to $1.97 billion, more than triple the $651 million reported a year ago. Last year’s net was pulled down on exceptional charges. Full-year pro forma profit rose 42% to $12.38 billion, from $8.72 billion in 2002.

Pro forma, adjusted profit from BP’s Exploration & Production segment, rose only 0.6% to $3.69 billion. The world’s second largest major behind ExxonMobil Corp. said growing volumes and higher oil and gas prices in the final quarter were mostly offset by higher depreciation on assets, the impact of the decline of the dollar, restructuring charges in the United States and a higher provision for profits not made from product held in stock.

Browne said that the world economy began to recover in the fourth quarter, and “growth was robust in the U.S. and in Asia, particularly China, but Europe continued to lag. The U.S. and Asia are expected to continue growing above trend in 2004, but European growth is expected to remain below trend, with the exception of the U.K.”

Last year, BP’s capital expenditures were $14 billion, excluding acquisitions. This year, the company plans to drop its spending to $13.5 billion, and Browne said spending will trend down for the near future.

“There are two reasons for this downward trend,” Browne said. “Firstly, investment in pipelines, notably BTC and the Mardi Gras system in the Gulf of Mexico (GOM), and spending on ships for the transportation of Alaskan crude, will be complete in 2005. Secondly, a natural slowing of the pace of investment is expected to occur, after the significant aggregate upfront cost involved in establishing the four new profit centers in the deepwater GOM, Azerbaijan, Angola and Trinidad. You will see the beginning of this trend this year.”

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