Tuesday, May 01, 2012

(Adds CEO comments in the third, fourth and fifth paragraphs, comment, detail, share price throughout.) 


 
   By Alexis Flynn 
   Of DOW JONES NEWSWIRES

LONDON (Dow Jones)--BP PLC (BP) Tuesday posted a drop in first-quarter profits as the energy giant's asset sales after its U.S. oil spill contributed to a drop in production, preventing it from cashing in on bumper crude oil prices to the same extent as some rivals.

BP's results underscored the impact that the Deepwater Horizon disaster continues to have on the company more than two years after a rig leased by the firm exploded in the Gulf of Mexico, killing 11 and setting off the worst offshore oil spill in U.S. history. While BP's financial health is now sufficiently robust to withstand the multibillion-dollar costs stemming from the 2010 explosion and oil spill, production has yet to return to previous levels.

Chief Executive Bob Dudley stressed the positives in an accompanying statement, choosing to focus on how BP is sticking to a 10-point set of "operational milestones" it announced in late October.

However, in an email to staff, Dudley was more forthcoming in laying out why the company had fallen short.

Lower production as a result of divestments, higher costs due to inflation in the industry and lower margins in the downstream were all cited by Dudley as reasons for the weaker year-on-year results.

The company said its clean replacement cost profit, a keenly watched figure that strips out gains or losses from inventories and other non-operating items, dropped 12.8% for the period to $4.80 billion, compared with $5.50 billion for the first quarter of 2011. The adjusted figure is broadly comparable with net income under U.S. accounting rules.

This was below expectations of $5.10 billion in a Dow Jones Newswires poll of 10 analysts.

The London-based energy giant said net profit for the three months ended March 31 was $5.92 billion, compared with $7.25 billion for the first quarter of 2011.

While BP's profits were underpinned by high oil and gas prices, weaker production than in the corresponding period last year prevented it from benefiting in the manner of peer Royal Dutch Shell PLC (RDSB.LN), which last week posted a near 16% rise in first-quarter adjusted earnings.

Overall output declined 3% from a year ago, largely due to the continued shutdown of its 43,000-barrel-a-day Foinaven field in the U.K. North Sea and the continued impact of a wide-ranging asset sale program. Production at Foinaven was halted in January after a small leak was discovered in an underwater pipeline.

Total production was 3.471 million barrels of oil equivalent per day, compared with 3.578 million per day a year ago. Analysts had expected production to fall to 3.457 million barrels of oil equivalent per day.

By contrast, first-quarter production in 2010--the last period unaffected by the Gulf of Mexico disaster--was 4.010 million barrels, some 13.4% more than current output. Although BP plans to invest $4 billion in a fresh Gulf drilling program this year, it will lose some 50,000 barrels a day when it sells its share of some older offshore fields in the region. In a statement accompanying Tuesday's release, BP said it would put interests in assets in the Marlin, Horn Mountain, Holstein, Ram Powell and Diana Hoover fields on the auction block.

BP shares opened Tuesday sharply lower, at one point dropping 3%, although by late afternoon they had clawed back some losses. At 1506 GMT, BP shares were down 3 pence, or 0.7%, at 441p. The stock has remained almost a third lower than it was before the Gulf of Mexico oil spill as investors continue to price in the risk of massive U.S. government fines.

"It takes a lot of time to turn such a big ship around, and I think if anything, BP has been a little too optimistic. Recent results have generally been at the low-end, while the steers to analysts have been at the high end," said Paul Mumford, senior fund manager at London-based Cavendish Asset Management, a holder of around GBP2.8 million in BP shares.

Some analysts were phlegmatic about the company missing expectations, which they attributed to a quarterly "consolidation adjustment," based on a snapshot value of inventories at the end of quarter.

The accounting adjustment, totaling $541 million, reflects profits--made by BP's exploration and production unit selling oil at market-related prices to its refining business--not yet being realized as actual profits by BP as a whole, a BP spokesman said.

RBC Capital's Peter Hutton cited lagging production as a more pressing concern, while Jason Gammel of Macquarie Equities Research said this should be seen in the context of BP's massive asset sales undertaken in the wake of the Gulf spill.

"It's a part of an overall process [of divestiture and cost recovery]," said Gammel, adding that maintenance downtime has also had an impact.

-By Alexis Flynn, Dow Jones Newswires; +44 (0)20 7842 9317; alexis.flynn@dowjones.com (Benoit Faucon in London contributed to this report.)

(END) Dow Jones Newswires

01-05-12 1557GMT