BP plc is making good on its promises to improve performance, and the financial market turmoil actually has created new opportunities, the CEO said last week. The London-based producer was buoyed after reporting a better-than-expected 83% jump in quarterly net profit.
Excluding nonoperating items and fair value accounting effects, BP reported 3Q2008 net income of $8.9 billion (42.56 cents/share), compared with $4.41 billion (23.07 cents) in the same period a year ago. Wall Street analysts had pegged 3Q2008 earnings of around $6.78 billion. Revenue climbed to $104.83 billion from $72.84 billion.
Despite some operational upsets, which included hurricane damage in the Gulf of Mexico (GOM) and interruptions to output from its Caspian Sea fields, BP’s oil and natural gas output rose slightly by 0.4% from 3Q2007 to 3.664 million boe. Adjusting for price impacts on production-sharing agreements, BP’s production was up almost 5%, Hayward noted.
“Although it has since fallen away sharply, the high oil price of the third quarter obviously helped our absolute result,” CEO Tony Hayward said. “But this should not obscure very real operational improvements in refining and rigorous cost control across the company that kept our cash costs essentially flat compared with last year — despite immense inflationary pressures in the sector.”
Earlier this year Hayward pledged to boost BP’s output by 13% over the next five years to around 4.3 million boe/d (see NGI, March 3; Feb. 11). BP’s goal is based on an average oil price of $60/bbl, which it said would keep output above 4 million boe/d through 2020.
BP’s managers are “making good on our promise to deliver the strategy we laid out earlier this year: upstream growth, downstream turnaround and corporate simplification,” the CEO said. “We are well placed to weather the prevailing financial storm and to benefit from the business opportunities that may well arise from a downturn.”
BP this year began to pursue more unconventional gas prospects in North America. In July it agreed to pay $1.75 billion in cash to acquire all of Chesapeake Energy Corp.’s interests in the Woodford Shale (see NGI, July 21). A few weeks later the two companies formed a joint venture in which BP paid $1.9 billion to acquire a 25% stake in Chesapeake’s Fayetteville Shale assets (see NGI, Sept. 8). BP also is rumored to be eyeing more of Chesapeake’s gas assets (see NGI, Oct. 20).
Compared with 3Q2007, BP’s replacement cost profits jumped 148% to $10 billion, and operating cash flow rose 133% to $14.9 billion. BP is planning to pay a dividend of 14 cents/share in December, which, on a dollar basis, is up almost 30% from a year ago.
“Our aim remains unchanged — to grow that dividend through time in line with our view of future sustainable performance,” Hayward said. “As new upstream projects like Thunder Horse [in the GOM] come onstream, refinery availability is restored in the U.S., and the results of cost initiatives begin to deliver, the financial benefits of that performance are showing through. We are steadily and methodically meeting our promises.”
Hayward cautioned that commodity prices could weaken more as the “world enters recession,” but “I believe that BP is well positioned to cope with such volatility. Our balance sheet is strong and we have committed less of our portfolio to high-cost options like tar sands and gas conversion than some of our peers.”
In fact, “we think the current turmoil may in fact create opportunities for us, and we will look at those very closely.”
BP’s recovery is one of “steady acceleration,” said the CEO. Production growth will be “underpinned well into the next decade” through a series of major projects already under way and its “continuing exploration success.”
No let-up is planned in the company’s quest to simplify its operations and reduce costs, said Hayward.
“BP’s workforce across the world has responded powerfully to our determination to make every dollar count,” he said. “Today’s results reflect those efforts. Our disciplined approach will continue and there is much more we plan to do.”
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