BP Q3 profit down by a third, tops forecasts

[October 27, 2009]  LONDON (AP) -- BP PLC, Europe's second-largest oil company, reported a 34 percent fall in third-quarter profit to $5.3 billion -- better than markets expected -- as oil and gas prices fell from record levels a year earlier.

Tuesday's figure compared with an $8.0 billion profit in the third quarter of 2008 but was up from $4.4 billion in the second quarter and well ahead of analysts' forecasts.

BP shares were up 4.2 percent to 591.1 pence in midmorning trading on the London Stock Exchange.

"BP is harvesting the fruits of its turnaround program," said Richard Griffith, analyst at Evolution Securities. He said the company benefited from reduced operating downtime, volume growth and sharply reduced operating costs.

Replacement cost profit, a key oil industry measure, was down by half to $4.98 billion from $10.03 billion a year earlier, though well up from $3.14 billion in the second quarter. The figures exclude inventory gains and losses and tax charges and credits.

The company declared a dividend of 14 cents per share, unchanged. "BP's contribution to what is becoming a strong third quarter earnings season is likely to meet with broker upgrades, potentially strengthening the current market consensus even further from its current buy status," said Richard Hunter, analyst at Hargreaves Lansdown Stockbrokers.

Earnings reflected a big drop in oil prices from $115 a barrel last year to about $68 a barrel, and an even deeper decline in gas prices.

Production of 3.9 million barrels per day in the third quarter was up 7 percent from the previous year, helped by fewer disruptions from hurricanes. Factoring out storms, production was still 4 percent higher than a year ago, BP said.

Comparisons will get tougher in the fourth quarter, analysts at Collins Stewart said, because BP's Thunder Horse platform, 150 miles (240 kms) southeast of New Orleans, had made a significant contribution to the last quarter of 2008.

Production for the first nine months was 3.98 million barrels per day, up 4 percent compared to 2008.

Replacement cost profit for the first nine months was $10.5 billion, compared to $23 billion in 2008. Net profit was down from $24.5 billion to $12.3 billion.

Costs for the first nine months were down more than 15 percent from last year, BP said.

"The company now expects FY 09 cash costs to be around $4 billion lower year on year vs. original guidance of $2 billion," noted Gordon Gray and James Evans, analysts at Collins Stewart.

"A large element of the cost savings will have come from currency gains and lower fuel costs, but BP maintains that over half of the improvement is from self-help and improved operational efficiency," they added.

In September, BP announced a major discovery in the Gulf of Mexico where it is the largest oil and gas producer. It said the well, one of the deepest ever drilled, reached a pool of oil big enough to supply U.S. consumption for nearly one year, but the amount which can actually be extracted has yet to be determined.

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On the Net: http://www.bp.com/

[Associated Press; By ROBERT BARR]

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