BP Plc, Europe's second-largest oil company, reported its lowest profit in two years because of falling energy prices and declining production and said output will probably drop again in 2007.
Fourth-quarter net income declined 22 percent to $2.88 billion, or 15 cents per share, from $3.69 billion, or 18 cents, a year earlier, London-based BP said today. The stock had its biggest drop in about three weeks as the company said further delays at the Atlantis and Thunder Horse Gulf of Mexico rigs will crimp output this year and next.
Last year's drop in production was the first since Chief Executive Officer John Browne spent $100 billion buying Amoco Corp. and Atlantic Richfield Co. and was caused by lost output from Alaska and delays at the two Gulf rigs. Profit was lower than at BP's bigger competitors Royal Dutch Shell Plc and Exxon Mobil Corp.
``BP has been a disappointing investment,'' said Andy Brough, who helps oversee about $7.6 billion at Schroder Investment Management in London, including BP shares. ``There's an old saying `elephants don't gallop' and it's very hard when you get to a big size to actually meet the expectations of 10 percent growth people are looking for.''
BP, whose reputation was buffeted by a fatal Texas refinery blast, last month said Browne would advance his retirement. Tony Hayward, the former head of exploration and production, will replace Browne as chief executive officer on Aug. 1.
Shares Drop
Shares in BP dropped 10.5 pence, or 1.9 percent to 531 pence as of 12:30 p.m. in London today. The stock has lost 6.6 percent so far this year, following an 8.3 percent slide in 2006. Of the 36 analyst recommendations monitored by Bloomberg, 21, or 58 percent, give BP a ``buy'' recommendation, while 9 say ``hold'' and 6 advise ``sell.''
Excluding changes in the value of oil inventories, profit matched analyst estimates. Based on this measure, quarterly profit fell 12 percent to $3.895 billion, in line with the $3.89 billion predicted in a Bloomberg survey of nine analysts. The company refers to that measure as replacement cost profit. BP's profit figures included a net non-operating charge of $152 million.
Atlantis will be up and running by the end of 2007, and Thunder Horse by the end of the following year, Hayward told reporters in London today. Atlantis was originally scheduled to start last year and Thunder Horse in late 2005. The delays will curb output this year by 150,000 barrels a day and by 100,000 barrels a day in 2008, Hayward said.
Production Forecast
For 2006 as a whole, production fell 2.2 percent to 3.93 million barrels a day, and the company forecast output would likely drop this year to between 3.8 million barrels a day and 3.9 million barrels a day. Daily output will exceed 4 million barrels by 2009 and 4.3 million barrels by 2012, it said.
Output will rise starting next year, Browne said in an interview with Bloomberg today. Shortages of some equipment and personnel were forcing BP to be ``cautious'' when forecasting output, he said.
``The production guidance for 2012 can be seen as positive,'' said Jason Kenney, an analyst at ING Wholesale Banking in Edinburgh, who has a ``hold'' rating on the stock. ``This is quite a neutral set of numbers.''
BP's quarterly oil and gas production declined 4.5 percent from a year ago to 3.84 million barrels a day, its sixth year-on- year quarterly drop. The company lowered production expectations on Oct. 24, when it said asset sales and the effect of high prices on production-sharing contracts meant an earlier guidance was no longer valid.
Shell, Exxon
Its quarterly production drop contrasts with Shell which said last week that production in the period rose 4.1 percent to 3.65 million barrels of oil equivalent a day. Shell on Feb. 1 reported a 21 percent jump in fourth-quarter net income to $5.28 billion while Exxon posted net income of $10.3 billion the same day.
Browne, who is stepping down more than a year ahead of plan, was criticized in a report last month, which said he failed to provide the leadership needed to keep the company's U.S. refineries safe.
The report was prepared by a committee led by former U.S. Secretary of State, James A. Baker III. It also concluded that the company failed to make safe practices ``a core value across all of its five U.S. refineries.''
Prudhoe Bay Leak
BP was forced to shut down more than half of its 400,000 barrel-a-day Prudhoe Bay field in Alaska in August after oil leaked from pipelines that hadn't been adequately monitored for corrosion. Normal production resumed mid-October.
The company's refining global indicator margin, a measure of the profitability of its refineries worldwide, fell to $6.30 a barrel in the fourth quarter, from $7.60 in the year-earlier period, the company said last month. It was also down from $8.40 in the third quarter of 2006.
The March 2005 explosion at BP's Texas City, Texas, refinery killed 15 workers and injured hundreds. The company was fined and criticized by U.S. regulators and lawmakers and set aside $1.6 billion to cover victims' legal claims.
BP's proved reserves replacement ratio, using U.S. Securities and Exchange Commission accounting standards, was 113 percent, excluding acquisitions and disposals.
Capital expenditure, excluding acquisitions and including a $1 billion investment in Russia's OAO Rosneft, was about $16.9 billion last year, BP said. Spending will rise to about $18 billion in 2007, it said.
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