THE WALL STREET JOURNAL: BP's Net Profit Nearly Doubles Amid Soaring Oil Prices: “Shell , which reports earnings on Thursday, has said it plans to modestly increase spending, in part to restore investor confidence in its exploration and production unit -- hobbled by this year's energy-accounting scandal.” (ShellNews.net)

By CHIP CUMMINS

Staff Reporter of THE WALL STREET JOURNAL

October 26, 2004 8:25 a.m.

LONDON -- BP PLC said net income almost doubled in the third quarter amid soaring oil prices.

But the petroleum giant warned of higher oil-field costs, a trend that may damp the outlook for other big energy companies reporting their earnings this week, including Exxon Mobil Corp. and Royal Dutch/Shell Group.

Despite soaring energy prices, BP and other major oil companies have tried to keep a lid on spending, having been burnt by volatile energy-price swings in the past. London-based BP, for instance, has shoveled a large chunk of this year's energy-price windfall back to shareholders by buying back some $5.5 billion of its shares.

But that discipline now appears threatened by factors that oil companies can't completely control. BP, the world's second-largest publicly traded oil company by market capitalization, said earlier that its capital-spending budget would grow this year, from some $13.5 billion to $14 billion, because of higher costs for goods and services used in the oil field and because of a weakening dollar.

Tuesday, the company said rising costs, or "sector-specific inflationary pressure," would likely continue through next year, boosting this year's capital spending slightly and increasing next year's spending plans to $14 billion, up from previous estimates of between $12 billion and $12.5 billion.

The planned spending increase rattled shareholders early in the day, sending BP shares down 3 pence, or 0.7%, to 534 pence on the London Stock Exchange.

Higher costs could also be a factor in the outlook for other big oil companies. Shell , which reports earnings on Thursday, has said it plans to modestly increase spending, in part to restore investor confidence in its exploration and production unit -- hobbled by this year's energy-accounting scandal. But it has also struggled with cost run-ups, including higher prices for raw materials and creeping project costs at a large oil and gas project on the Russian Far East island of Sakhalin.

"The rest of the sector looks under scrutiny here again," wrote J.J. Traynor, an oil equities analyst at Deutsche Bank in Edinburgh, in a note to clients after BP's earnings release.

Amid the higher oil prices, oil-field service and supply companies have seen customer demand increase, especially among smaller companies that tend to drill more when prices rise. Service companies, in turn, have been able to pass along their higher costs to customers for everything from leasing drilling rigs to hiring out specialized contractors. Smith International Inc., a Houston oil-services company, said Monday that it was passing on higher metal, fuel and shipping costs to customers.

The weakening dollar has also made life difficult for international oil companies, which typically sell their oil in dollars but have to pay for goods and services in other currencies around the world.

BP said third-quarter net income was $4.48 billion, or 21 cents a share, compared to $2.34 billion, or 11 cents a share, in the year-ago period. Revenue in the period was $73.85 billion, up 25% from $59.16 billion. BP's net income is reported in accordance with U.K. generally accepted accounting principles and isn't directly comparable to U.S. GAAP.

BP said it took charges of about $401 million for exceptional or nonoperating items, such as unrealized losses on stock holdings and environmental and other provisions, compared to similar charges of $217 million in the third quarter last year.

BP's energy production rose 11% in the quarter to 3.9 million barrels of oil equivalent per day. The boost came from BP's Russian joint venture, TNK-BP, and increases in other production regions. Those gains were partially offset by declines from planned maintenance in the North Sea and Alaska, operational shutdowns in the Gulf of Mexico related to Hurricane Ivan and a blow-out at operations in Egypt.

Write to Chip Cummins at chip.cummins@wsj.com