BLOOMBERG: BP Signals 3rd-Quarter Profit Rose on Higher Prices (Update2): “Oil companies including BP, Exxon and Royal Dutch/Shell Group as of Friday were pumping 29 percent below normal rates in the U.S. Gulf after the hurricane swept through the area, damaging rigs and forcing evacuations.” (ShellNews.net)

Oct. 4 (Bloomberg) -- BP Plc, the world's second-largest publicly traded oil company, signaled profit rose in the third quarter because of record crude prices and an 11 percent increase in production.

Oil and gas output averaged 3.88 million barrels a day, with a gain in Russia in part offset by storms in the U.S. Gulf of Mexico that led to rig shutdowns, London-based BP said in a statement. The company reports results for the quarter on Oct. 26. Crude oil in the U.S. in the period averaged $43.88 a barrel, 45 percent more than a year ago.

``Prices were fantastic,'' said Bruce Evers, an analyst at Investec Securities in London, with a ``buy'' rating on BP shares. ``There's a slight disappointment with the production volumes.''

BP, Exxon Mobil Corp. and other oil companies are benefiting from rising oil prices, which reached $50 in New York for the first time on Sept. 28 as violence in Nigeria and hurricanes in the U.S. Gulf of Mexico lowered supply. BP is expanding because of a $6.35 billion venture in Russia, where Total SA and ConocoPhillips are also buying assets.

Before today's statement, analysts at Deutsche Bank AG expected the company to post profit of $4.2 billion in the quarter, a gain of 41 percent from a year ago. BP shares are rated ``buy'' by 53 percent of analysts who follow the company, according to Bloomberg data. Royal Dutch Petroleum Co. has a ``buy'' rating from 27 percent of analysts.

Shares of BP were unchanged at 540 pence as of 11:52 a.m. in London, after earlier rising as much as 1.2 percent. The shares have advanced 19 percent this year, outperforming a 4.1 percent increase in the FTSE 100 Index of the biggest U.K. companies.

Extra Costs

Earnings in the quarter were hurt by $600 million of costs for environmental cleanups and the write-off of an Egyptian gas rig after a fire. Merrill Lynch & Co. analysts expected BP to detail as much as $500 million of environment-related charges.

At BP, oil and gas production is rising because of the venture in Russia with OAO Tyumen Oil Co., TNK-BP, created in August 2003. TNK-BP added 945,000 barrels a day to BP's production in the quarter.

While output is higher, BP receives a narrower margin on each barrel it pumps from Russia than in some parts of the world, such as the U.K. North Sea. In addition, higher export taxes in Russia will cut earnings by a further $100 million, BP said.

Excluding Russia, BP's output declined to about 2.94 million barrels a day from 3.08 million in the second quarter of this year, because of shutdowns at rigs in Alaska and the North Sea for maintenance, the fire at the Temsah gas platform in Egypt and the impact of Hurricane Ivan in the U.S. Gulf, BP said.

Oil companies including BP, Exxon and Royal Dutch/Shell Group as of Friday were pumping 29 percent below normal rates in the U.S. Gulf after the hurricane swept through the area, damaging rigs and forcing evacuations.

BP confirmed a target to produce an average of more than 4 million barrels a day this year, which would be up 11 percent from 2003. That's double a target for growth of 5.5 percent that BP missed in 2002, disappointing investors.

``As far as I'm concerned, they are on track,'' said Angus McPhail, an analyst at ING Financial Markets in Edinburgh, Scotland, who has a ``buy'' rating on BP.

Refining Gains

The statement also showed that BP's second-largest business, refining oil and selling fuels, gained from higher margins in the quarter. BP's global refining margin averaged $6.20 a barrel, 35 percent more than a year ago, BP said.

Refining oil and selling fuel is BP's second-largest business after producing crude oil and gas. BP owns or has stakes in 23 refineries, where it processes about 3.4 million barrels of crude a day, or enough to supply Germany.

High oil prices in the quarter squeezed margins from selling fuel at BP's filling stations, because the increase in raw- material costs was faster than the rise in pump prices. BP sells fuel at a worldwide network of 27,800 forecourts.

Oil companies including BP and Shell have been buying back stock as high oil prices boost profit. BP has repurchased 621 million shares so far this year at a cost of $5.5 billion and said it plans to continue repurchases.

Brent crude oil, a London-traded benchmark, has risen to $46 a barrel from about $29 a barrel in January. A $1 increase in adds about $570 million to pretax earnings in 2004, BP estimated.

BP has overtaken Shell to become the second-largest oil company by market value, by making more than $100 billion of takeovers since 1999. It also gained after Shell hurt investors' confidence this year by lowering its proved oil and gas reserves.

To contact the reporter on this story:

Alex Lawler in London alawler@bloomberg.net

To contact the editors of this story:

Tim Coulter at tcoulter@bloomberg.net