BP Amoco, the last of the big three majors in the oil and gasindustry to report second quarter earnings, last week revealed thatlike those that have already made their earnings public, theLondon-based giant had record results, posting a 164% increase tothe bottom line.

CEO John Browne said that the earnings surge was keyed to threethings: strong energy prices, cost savings throughout the companyand investments and discoveries that are hitting or exceedingtargets.

“These results represent the cumulative impact of the progresswe’ve made over the last few years.growth in volume and, equallyimportant, growth in total productivity resulting from the way wework,” Browne said.

The earnings beat analysts’ forecasts, with net profit standingat $3.670 billion. It also represented a 164% increase from the$1.367 billion in second quarter 1999. Analysts had predictedreplacement cost profits, which is how BP values its supplies, tobe 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 includecontributions form Atlantic Richfield Co., a deal BP finalized inApril. The amortization of goodwill from the ARCO purchasecontributed $302 million in the second quarter. Officials said thatthe combined cost structure of the two companies was $1 billionlower than a year ago, which excluded the divestiture of ARCO’sAlaskan assets. It also represents half of the targeted annual $2billion cost savings from the merger. By 2001, BP has set a totalsavings goal of $5.8 billion, with $4.7 billion or 80% targeted bythe end of this year.

“Overall, the outlook in the near term remains broadlypositive,” 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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