BP hit by third output slide

By TOM NICHOLLS
Updated:

 

BRITAIN'S largest company BP today admitted that its oil and gas production has declined for a third successive quarter.

Lord Browne

The group estimates first-quarter output at 4.025 million barrels of oil equivalent a day (boe/d) - short of the 4.1m it pumped in the first quarter of 2005 and virtually unchanged from a disappointing final quarter of last year.

Oil prices for the period - with Brent oil trading about 30% higher than a year ago at an average of $61.79 a barrel - are likely to yield yet another batch of record-breaking earnings.

But analysts had hoped to see the company restore production to yearago levels following the slump in the second half of 2005 that was caused by hurricane-related disruptions at its US production and refining businesses.

The company, headed by chief executive Lord Browne, has set itself a target of between 4.1m and 4.2m boe/d this year. There was some recovery in the Gulf of Mexico operations but a slowdown in the growth of the group's Russian output because of disposals and extremely cold weather resulted in an overall decline.

BP, the world's second-biggest oil company, said the 460,000 boe/d Texas City refinery, which was shut down last September ahead of Hurricane Rita, was still closed at the end of the quarter although a 'phased recommissioning' has begun.

The closure was behind a fourth-quarter loss of $160m (£91.7m) at BP's refining and marketing business. Global refining margins were slightly ahead of last year but almost 20% down from the fourth quarter of 2005. BP added that marketing margins would also be down against the final three months of last year.

In 2005, output dropped below the group's target of between 4.1m and 4.2m boe/d to 4.02m in the fourth quarter and to 4.014m for the year as a whole. Hurricane damage, the near-sinking of its £570m Thunder Horse oil platform in the Gulf of Mexico and the production outage and an explosion at the Texas City refinery cost $1.8bn in repairs and lost profits and left BP lagging behind larger rival ExxonMobil.

Production problems are one of the reasons behind the group's disappointing share-price performance - mitigated by a massive buyback programme that could see the group return $65bn to shareholders over the next three years.

BP has underperformed the oil and gas sector by 40% since 2002 and was able to replace only 95% of the oil and gas it produced last year with new reserves.

BP shares topped out at 683½p last year but have failed to reach that level this year despite record profits and share buybacks. A research report by BP's financial adviser, JPMorgan Cazenove, claimed the company might recover lost value by splitting itself in two, demerging its highly lucrative exploration and production arm from the downstream refining and petrol pump businesses.

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