BP Reports 24% Fall in Q4 Profits; Full-Year Profits for 2007 Down 22%

Profits Fall at BP

BP, Europe's second-largest oil and gas company after Shell, has reported a fourth-quarter replacement cost profit of US$2.97 billion. This represents a decrease of 24% compared with US$3.89 billion a year ago. For the full year BP’s replacement cost profit was US$17.29 billion, 22% below its 2006 level of US$22.25 billion. Weaker refining margins and higher costs outweighed sustained higher crude prices. Operational problems continue to plague BP's refining and marketing arm, which made a loss of US$1.337 billion in the quarter, with the company's chief executive Tony Hayward blaming the "poor reliability in some of our US refineries". BP’s actual refining margin for the fourth quarter was lower than that of the fourth quarter of 2006, mainly due to improved product stock levels and rising crude prices.

Hayward was quoted as saying "Although our fourth-quarter profits were very disappointing in refining and marketing in particular, we made good, step-by-step progress in bringing new oil and gas fields on stream and rebuilding refining capacity during the period".

In the fourth quarter the company stated in a press release that it had started production at five BP-operated major projects: Mango and Cashima in Trinidad; Atlantis and King Subsea Pump in the Gulf of Mexico; and Greater Plutonio in Angola. First production also came from the Mondo field within the Kizomba C development in Angola, where BP holds a 26.67% interest, and the Denise field in Egypt, where BP holds a 50% interest.

Notably, BP announced a reserve replacement ratio of more than 100%, making 2007 the 14th consecutive year that it has replenished oil and gas reserves by more than its annual production.

Outlook and Implications

Hayward, who became BP chief executive in May taking over from Lord Browne, is in the middle of undertaking a restructuring programme that will see a "fundamental shift" in the way the company operates. Hayward believes that there is wide-ranging duplication and overlapping within the company, and that by the middle of 2009 the headcount at BP will be smaller by 5000. Investors and shareholders will welcome the 31% increase in fourth-quarter dividend announced by the supermajor.

The last year has been a considerable challenge for BP, which suffered the ignominy of the early departure of former chief executive Lord Browne. The company must also still contend with the fall-out from the explosion at the Texas City refinery in March 2005, which ultimately killed 15 and left 170 injured. Nevertheless, in 2008 the performance of the U.S. refining sector should improve and BP's 420,000-b/d Whiting refinery in Indiana, the largest refinery in the Midwest, is expected to resume full production in the first half of the year.

Find out more about Same-day Analysis