BP's profit halves

BP Plc beat third-quarter earnings forecasts by a big margin in a sign Chief Executive Tony Hayward's restructuring plans were delivering results, with cost cuts ahead of targets and oil and gas output up strongly. BP said third-quarter replacement cost net profit, which strips out unrealised gains or losses related to changes in the value of fuel inventories, fell 50 percent to $4.98 billion, due to lower oil and gas prices.
However, the underlying result was almost 50 percent ahead of average analyst forecasts, lifting BP's shares to their highest level since June 2008, before easing back to trade up 4.3 percent to 591 pence at 1100 GMT. Analysts said a lower-than-expected tax rate and positive foreign exchange impacts flattered the figures but could not take away from a strong result. BP was helped by production rising in lower-tax areas such as the Gulf of Mexico, where the Thunder Horse platform, one of the largest offshore rigs in the world, ramped up in the first half of this year.
Brent crude prices averaged $68/barrel in the quarter, 40 percent lower than in the same period of 2008, while gas prices in the US and UK fell around 65 percent. A slight drop in BP's debt-to-equity, or gearing, ratio reassured investors that BP's fat dividends were safe. Lower earnings meant BP and its rivals had to borrow in the first half of this year to pay dividends, or in some cases, were forced to cut their payouts. Europe's second-largest oil company by market value said it had reduced costs in the oil and gas production and refining units by over 15 percent.
This progress has allowed BP lift its cost-cutting target for this year to $4 billion from $3 billion. The company said oil and gas production averaged 3.92 million barrels of oil equivalent per day in the quarter, up 7 percent compared to the same period in 2008.
The third-quarter result was also helped by a rise in profit at BP's Russian joint venture, TNK-BP. Excluding one-offs, the replacement cost net profit was $4.67 billion, compared to an average forecast of $3.16 billion from a Reuters poll of 11 analysts.