BP Posts Strong Earnings Boosted by High Oil Prices

CHIP CUMMINS / Wall Street Journal 26apr2005

LONDON — BP PLC said profits soared by more than a third in the first quarter from the same period a year earlier, as high oil prices and refining margins among the world's biggest oil companies show little sign of reversal.

Rising oil-field costs, however, ate into earnings at the world's second-largest publicly traded oil company by market capitalization. That trend may also dent otherwise strong performances expected at BP's closest competitors, including No. 1 Exxon Mobil Corp. and No. 3 Royal Dutch/Shell Group, which both report earnings Thursday.

John Browne, BP's chief executive, said at a news conference Tuesday that the company's outlook on the fundamentals of the oil market remained largely the same from six months ago, indicating he expected oil prices and refining margins to stay strong. Lord Browne attributed the robust results to favorable market conditions and "disciplined execution of an unchanged strategy."

BP's net income jumped 35% to $6.66 billion, or 30.4 cents a share, in the first quarter, from $4.95 billion, or 21.8 cents a share, a year earlier. The most recent quarter's results included gains totaling $535 million, largely related to the sale of a Norwegian natural-gas field; the 2004 first quarter included a gain of $776 million.

Revenue increased 16% to $79.81 billion from $69 billion.

For the quarter, BP reported according to International Financial Reporting Standards, which the company adopted earlier this year as part of a European Union effort to harmonize financial reporting. Previously, BP reported in accordance with British generally accepted accounting practices. The financial figures also don't directly correspond to those reported by American companies, which are required to use U.S. GAAP.

Earnings at the company's core exploration and production business soared 53% to $6.49 billion from $4.25 billion, due largely to higher oil prices and modestly climbing production. BP said it recorded $780 million in exceptional gains related to the sector, including proceeds from the sale of its stake in the Ormen Lange natural-gas field off the coast of Norway. That gain was partly offset by impairment charges for North Sea fields and $160 million in losses related to the changing value of long-term natural-gas contracts in the company's portfolio.

Total hydrocarbon production — including oil and natural gas — inched up 2% to about 4.1 million barrels a day from about four million barrels in the first quarter of 2004. BP is banking on a number of big projects slated to come online this year to sustain last year's impressive output growth, bolstered in large measure by a joint venture it created in Russia in 2003.

Lord Browne said he had been encouraged by a meeting last week with Russian President Vladimir Putin, though he declined to discuss details of his private discussions in Moscow. Russian authorities are considering new legislation that would restrict foreign participation in some fields, a potential blow to BP's growth plans there. Lord Browne said he felt the company had plenty of opportunities to invest in new fields in the country despite the uncertainty.

BP said it realized average crude prices of some $43.37 a barrel, up sharply from $31.30 a barrel in the 2004 first quarter. Average global refining margins rose to $5.94 a barrel from $4.89 a barrel.

The higher cost of crude and refined products eroded BP's retail marketing profits, however. BP said retail marketing margins were "extremely weak." Slightly lower oil prices in the second quarter may bolster marketing margins, the company said, but it was uncertain how sustainable the recovery might be.