Refinery losses and costs hit BP profit

Refinery losses and costs hit BP profit
Reuters Published: February 05, 2008, 23:41

London: British Petroleum (BP) reported a big drop in profits due to refining losses, rising costs and service station write-downs but higher production, planned job and cost cuts and a more generous dividend policy pushed its shares higher.

The third-largest Western oil company by market capitalisation said yesterday that full-year replacement cost (RC) profits fell 22 per cent to $17.29 billion, despite crude prices soaring in 2007 before hitting a record above $100 per barrel in January.

Fourth-quarter RC profit, which strips out unrealised gains on fuel inventories, fell 24 per cent to $2.97 billion. Underlying profits were below analysts' forecast range.

"Our fourth-quarter results were very disappointing," chief executive Tony Hayward said.

Last week, rival Exxon Mobil reported a 14 per cent rise in net income, while Chevron reported a 29 per cent rise and Royal Dutch Shell's profits, calculated on a comparable basis, rose 11 per cent.

Weak crude processing margins led to a $1.3 billion loss at BP's mainly US-based refining division while the planned sale of its US service station network forced the London-based company to take a $600 million charge.

However, there were signs of recovery in the quarter, with an almost two per cent rise in production to 3.907 million barrels of oil equivalent per day (boepd) compared to the same period in 2006, the first rise after nine quarters of falling output.

The company said it expected output to grow in 2008 and average four million boepd in 2009.

Excluding non-operating items, which amounted to a net charge of $1.03 billion, the fourth-quarter replacement cost profit was $4.002 billion.

BP investors also cheered a planned reduction in corporate overheads by 15-20 per cent, which will be achieved by axing 5,000 jobs and outsourcing another 9,500 jobs to franchisees.

BP announced a 31 per cent rise in its fourth-quarter dividend compared to 2006, and said in future it would have a bias for distributing cash to shareholders via dividends, rather than buybacks.

This is in line with the strategy followed by rival Royal Dutch Shell Plc.

The company has also raised the forward oil price it uses when deciding whether to invest in projects to $60 from $40 per barrel, suggesting it may be more aggressive in pursuing opportunities.

BP has suffered a series of problems in recent years. A blast at its Texas City refinery in 2005 which killed 15 workers, and which regulators blamed on cost cutting, ended up costing the company billions in settlements and lost profits.