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Oil companies profits record highs Original Source Link: (May no longer be active)
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BP Profits Beat Forecast, Dividend Jumps
Tue Feb 8, 2005 05:30 AM ET
By Tom Bergin and Sudip Kar-Gupta
LONDON (Reuters) - BP Plc, the world's second-largest listed oil company by market capitalization, reported above-consensus fourth-quarter profits on Tuesday thanks to high oil prices and strong refining margins.
The company also cheered shareholders with a 26 percent jump in its dividend to 8.5 cents, but failed to replace all the oil it pumped last year with new reserves, under the U.S. Securities and Exchange Commission measure, the industry standard.
BP said fourth-quarter proforma profit rose to $3.646 billion. Adding back non-operating charges of $1.13 billion, BP's 'clean' result was $4.8 billion, 80 percent up on the year and ahead of the average forecast of $4.584 billion in a Reuters poll of 11 analysts.
Full year profits were over $16 billion.
BP's result follows record earnings at European rival Royal Dutch/Shell and global sector leader Exxon Mobil, which also basked in the highly opportune operating environment for oil firms.
BP shares were up 1 percent at 548-1/2 pence at 4:34 a.m. EST, compared to a 0.1 percent rise in the European oil and gas sector.
BP's exploration and production division was the main driver of earnings, benefiting from higher prices and volumes, although analysts said they had expected it to perform slightly better.
Group hydrocarbon production grew 11 percent in 2004, and the firm said it was on track to meet its target of raising production in excess of 5 percent for the period 2004-2008.
So far, this growth has been driven by low-margin Russian production and investors are hoping BP can start to boost production from more profitable areas in 2005.
"Projects in the new profit centers remain on track," the company said.
Fat margins at BP's refining and petrochemicals divisions also helped boost profits.
BIGGER DIVIDEND
The big jump in the dividend follows calls from some investors for BP to shift its focus away from buybacks to dividends as the means of returning cash to investors.
However, BP said it remained committed to buybacks and that the step-up to a higher base in the dividend was a one-off, hinting future rises would be more modest.
Analysts welcomed the higher dividend.
"This clearly demonstrates BP's confidence in its future performance and cash generation even at oil prices lower than today's," Andrew Whittock, analyst at Numis Securities said.
Oil prices are expected to ease back from current heady levels above $40 a barrel, but BP still expects its performance to be underpinned by oil prices above long-term trends in coming years.
"Oil prices are likely to have a support level of around $30 a barrel for at least the medium term," Chief Executive John Browne said in a statement.
BP said it achieved 89 percent reserve replacement on a SEC basis, renewing concerns about the industry's ability to replace the oil it pumps with new finds.
"This is a reasonable outcome but echoes the challenges faced by the sector," Cazenove said in a research note.
BP said the figure was depressed because of the effects of high oil prices on its Production Sharing Contracts (PSCs).
Many new production deals now involve PSCs, under which a host government retains rights to its oil and allows an oil company to recoup its investment costs by taking a share of a project's output.
As the oil price rises, it takes fewer barrels to cover these fixed costs and so the number of barrels an oil firm can book as reserves falls.
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