Oil prices, production boost BP’s profit

/ Source: The Associated Press

Surging crude oil prices and robust production from its Russian subsidiary pushed net profit at British energy giant BP Group PLC 8.6 percent higher in the fourth quarter.

BP earned $2.53 billion for the final quarter of 2004, up from $2.33 billion a year earlier. Revenues rose 35 percent to $80.66 billion from $59.66 billion.

For the full year, BP’s profits increased 50 percent to $15.73 billion, while revenues rose to $294.85 billion from $236.05 billion in 2003.

“Against the backdrop of strong oil demand, we have had a very successful year both operationally and financially,” said Chief Executive John Browne.

“Our strong cash flow is now reflecting the results of our significant investment program over the past few years and improvements in underlying performance in line with strategy,” he added.

The company rewarded investors by announcing a 26 percent increase in its dividend to 8.5 cents.

BP said its operating profit, which excludes losses or gains from the sale of assets or termination of operations was $3.65 billion, up from $2.89 billion a year ago. That result included $1.1 billion in non-operating charges. If these charges are added back, the company easily exceeded analyst expectations of a result around $4.6 billion.

BP joined other major oil companies in benefiting from surging oil prices in the last quarter of 2004 — Brent crude traded on the International Petroleum Exchange averaged $43.85 over the three months, more than $2 a barrel higher than in the third quarter.

The Royal Dutch/Shell Group of Cos. announced last week that it earned $18.5 billion in 2004, a record for a British-listed company. U.S.-based Exxon Mobil Corp., the world’s largest listed oil company, reported 2004 net income of $25.3 billion.

“Despite Shell’s better profit figures, BP is in a better position given the company’s pipeline of new projects and impressive reserves replacement ratio,” said Simon Wardell, senior energy analyst at Global Insight. “Reserves are increasingly becoming the key to value and BP holds a substantial edge over Shell in this area, having added more oil and gas than it has produced for just over a decade now.”

BP’s reserves replacement ratio, or how much oil it replaced for that pulled from the ground, was 89 percent on a U.S. accounting basis for 2004.

That compared to just 15 percent to 25 percent at Shell, where a reserves overstatement scandal led the company to slash its stated reserves, pay almost $150 million in fines to U.S. and British regulators and sack three senior executives.

BP said its production for the quarter was up more than 4 percent to 4,095 barrels per day, compared with a year ago, largely due to increased volumes from TNK-BP, the company’s Russian subsidiary.

Total production for the year was 3,997 barrels per day, an increase of 10 percent on the previous year, but just short of the company’s target of 4,000 barrels.

BP said refining margins slipped 60 cents a barrel from the third quarter to $5.60 a barrel, but were still the highest fourth-quarter margins for at least 15 years.

Wardell noted that oil growth was only achieved with the inclusion of TNK-BP figures, with falling production from the company’s key U.S. and British assets.

“While BP is looking to halt the decline in U.S. oil output through new deepwater developments in the Gulf of Mexico, the company is also seeing a gradual shift from the relatively low-risk investments in the U.K. and U.S. towards central Asia, West Africa and Russia,” he said.