London Evening Standard: Oil price fuels peak BP profits: “At a price-earnings ratio of 13.5, it is trading at a 17% premium to Shell. Its Anglo-Dutch rival is still struggling to shake off the ill effects of the reserves overstatement scandal.” (ShellNews.net)
4 October 2004
IL giant BP today put itself firmly on track for record-breaking profits this year after signalling another blockbusting multibillion-dollar trading quarter on the back of the soaring oil price.
Although figures out today indicate a strong rise in earnings from a year ago, BP admitted its performance had not matched the stellar trading of the April-June quarter.
It also warned it would be taking a $600m (£335m) hit for environmental and other liabilities.
In a trading update ahead of third-quarter results at the end of the month, the oil major said production was 11% better than a year ago. That is 2% lower than in the record-breaking second quarter but it puts the group in line to hit 10% production growth in 2004.
That is in line with projections earlier this year but ahead of the previous plan of 5.5% annual growth, a target missed last year.
With those production increases, a 45% year-on-year leap in the oil price and strong margin growth, BP is on track to deliver pre-tax profits for the year of £13.5bn, according to a consensus of City analysts.
But the trading statement was not without its downside, with a warning for the motorist that more pain may be on the way.
BP, led by Lord Browne, said the average price of Brent crude during the quarter was $41.54 a barrel, over $13 more than a year ago, and almost 20% higher than in the second quarter of 2004.
But in its statement the company said that at the petrol pump 'the rise in input prices was faster than the increase in selling prices, leading to lower margins'.
BP said margins around the world are reckoned to be 35% higher year-on-year, although down by a fifth on the heights hit during the second quarter.
Those margins were hurt by a range of factors, not least a stalling of output in the Gulf of Mexico because of Hurricane Ivan, while there were further production losses after planned maintenance in the North Sea and Alaska and a blowout in Egypt.
The blowout, at the Temsah platform, will hit the company for $100m of write-off costs.
In addition the company said it is taking $500m of provisions for 'environmental remediation and other liabilities'.
BP shares today traded at a two-year high of 540p, unchanged in the session, having risen more than 50% since its 2003 low. At a price-earnings ratio of 13.5, it is trading at a 17% premium to Shell. Its Anglo-Dutch rival is still struggling to shake off the ill effects of the reserves overstatement scandal.
However, analysts believe there may be little upside in BP shares with many reckoning the high price of oil cannot be sustained over the long term. After hitting record highs last week, Brent crude today opened down 43 cents at $46.19 a barrel.
The company said that it had bought back 621m shares at a cost of $5.5bn in the year to date.