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BP's 2Q Profit Rises on Strong Oil Prices

Posted on: Tuesday, 26 July 2005, 12:01 CDT

LONDON - BP Group PLC, one of the world's largest oil companies, said second-quarter profit rose 29 percent on the strength of world oil prices, but said it was taking a $700 million (580 million euros) charge to settle claims from a refinery explosion.

Net profit came to $5.66 billion for the three months ended June 30, up from $4.38 billion in the second quarter of 2004. Revenue jumped to $88(AP) - billion from $71.1 billion.

The company also raised its capital expenditure guidance for 2006 partly due to higher costs and warned its retail margins have been hurt so far in the third quarter by higher refined product prices.

The company's shares fell 2 percent to close at 630 pence ($10.97) on the London Stock Exchange.

BP is the first major oil company to report its second-quarter results, before Royal Dutch Shell PLC and Exxon Mobil Corp., both expected to post strong earnings Thursday because of oil prices that remain near record highs.

BP Chief Executive John Browne said that North Sea Brent crude averaged $51.63 a barrel in the quarter, around $4 per barrel higher than in the first quarter.

"The financial highlights have, of course, been magnified by the external environment," he said. "But they couldn't have been delivered without the investments and improvements which have been made over the past decade."

The company had one-time items of $826 million, including the $700 million figure for settling claims arising from the Texas City, Texas, refinery explosion on March 23 that killed 15 workers.

Browne said the $700 million figure included $127 million for the settlement of claims related to the deaths and serious injuries and a provision of $573 million for estimated future costs.

BP said its replacement cost profit for the quarter, considered a key indicator by analysts, was $5.81 billion (4.84 billion euros), up from $4.07 billion (3.39 billion euros) for the same period last year. The measure is the amount it would cost to replace assets at current prices.

The company's exploration and production division was the main beneficiary of the rising oil price as profit for the quarter rose 38 percent from a year earlier to $5.9 billion.

Browne said that oil prices are likely to average around $40 a barrel over the next few years.

"We continue to say that oil prices in the medium term will be pretty strong," he said. "Whether they stay at this level remains to be seen because of the lack of production capacity and the lag, the time it takes to get that production ready for the market."

Browne warned it was not certain that the second six months would be as profitable as the first half of 2005.

"The outlook for retail margins remains uncertain with continuing crude and product price volatility," he said. "Rising product prices have dampened margins over the past few weeks and have contributed to a weak start to the third quarter."

In its refining operations, the company said its "average refining global indicator margin improved by nearly $2.50 per barrel versus the first quarter to reach $8.42." But it added that while "refining margins remain very firm in all regions (in the third quarter)," they have fallen below second-quarter levels.

Source: Associated Press/AP Online

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