The Independent: Platform snag mars bumper BP profits: "It is clear that our continued pleas to the major oil companies such as BP and Shell - who are now raking in £30m in profit every day to invest in the long-term future of the industry, including skills - have fallen on deaf ears.": Wednesday 26 October 2005

Oil giant faces $250m bill to correct Thunder Horse design flaw. Quarterly earnings hit $4.4bn

By Saeed Shah

Published: 26 October 2005

BP admitted yesterday it would have to spend $250m (£140m) to correct a design fault on its Thunder Horse production platform, as it announced bumper third-quarter profits of $4.4bn.

The oil giant said profits would have been higher had it not been for the hurricanes in the Gulf of Mexico, which wiped $700m off its earnings. The extreme weather will lead to lower production for this year.

BP spent $1bn on building Thunder Horse as a production facility fed by several wells in the Gulf of Mexico. Before the platform could be brought on-stream, a problem was discovered with its design. There has been speculation that the platform was damaged by the hurricanes. Lord Browne - BP's chief executive - said a shutdown of Thunder Horse during the storms meant the fault could be detected. "After a thorough investigation, we have concluded that it was not storm-related but caused by design weakness in the ballast system, which has been corrected offshore," he said.

The ballast system keeps the oil platform level. Thunder Horse had been expected to begin production this year but this will not happen until the second half of next year. BP said it would not seek to recover the costs of fixing the problem from other parties or insurance. Tony Hayward, the head of exploration and production, said: "Apportioning blame is not the right approach. We have to learn the lessons."

Separately, it emerged that another problem BP has faced in North America - a fatal explosion at a refinery in Texas in March - will be investigated by a team led by the former US secretary of state James Baker. Mr Baker said: "We will determine if the corporate culture at BP Products North America is properly focused on preventing tragic incidents such as the one that occurred in Texas City, or if improvements are required." Fifteen people died in the explosion at the refinery.

BP reported a third-quarter profit increase of 16 per cent to $4.4bn, as the price realised for its oil came in at $57 a barrel for the period, a jump of 44 per cent on last year's figure.

The size of the profit again stoked anger and led to unions demanding better conditions for oil industry workers. Graham Tran, who represents offshore workers at Amicus, said: "It is clear that our continued pleas to the major oil companies such as BP and Shell - who are now raking in £30m in profit every day to invest in the long-term future of the industry, including skills - have fallen on deaf ears."

The third-quarter figure was below the $5bn made in the second quarter of this year, but it puts BP well on the way to its best-ever yearly profit. For the first nine months of 2005, profit was up 25 per cent at $14.9bn, compared with $15.4bn for the whole of last year.

The third-quarter result was held back by an exceptional charge of $921m, related mostly to sale of BP's chemicals business Innovene.

On the production front, the hurricanes caused a loss of 135,000 barrels a day in the third quarter and the company said it expected that to rise to 160,000 barrels in the last quarter. That means the full-year production levels will average 4 million barrels a day, rather than the 4.1 to 4.2 million BP had planned.

Lord Browne said he anticipated oil prices - now about $60 a barrel - to stay "well supported through the winter", before dropping in the medium term to "more like $40".

He added: "A few months of high oil prices don't set a new era. Many people are influenced by the view that oil production has peaked. We don't believe that."

BP admitted yesterday it would have to spend $250m (£140m) to correct a design fault on its Thunder Horse production platform, as it announced bumper third-quarter profits of $4.4bn.

The oil giant said profits would have been higher had it not been for the hurricanes in the Gulf of Mexico, which wiped $700m off its earnings. The extreme weather will lead to lower production for this year.

BP spent $1bn on building Thunder Horse as a production facility fed by several wells in the Gulf of Mexico. Before the platform could be brought on-stream, a problem was discovered with its design. There has been speculation that the platform was damaged by the hurricanes. Lord Browne - BP's chief executive - said a shutdown of Thunder Horse during the storms meant the fault could be detected. "After a thorough investigation, we have concluded that it was not storm-related but caused by design weakness in the ballast system, which has been corrected offshore," he said.

The ballast system keeps the oil platform level. Thunder Horse had been expected to begin production this year but this will not happen until the second half of next year. BP said it would not seek to recover the costs of fixing the problem from other parties or insurance. Tony Hayward, the head of exploration and production, said: "Apportioning blame is not the right approach. We have to learn the lessons."

Separately, it emerged that another problem BP has faced in North America - a fatal explosion at a refinery in Texas in March - will be investigated by a team led by the former US secretary of state James Baker. Mr Baker said: "We will determine if the corporate culture at BP Products North America is properly focused on preventing tragic incidents such as the one that occurred in Texas City, or if improvements are required." Fifteen people died in the explosion at the refinery.

BP reported a third-quarter profit increase of 16 per cent to $4.4bn, as the price realised for its oil came in at $57 a barrel for the period, a jump of 44 per cent on last year's figure.

The size of the profit again stoked anger and led to unions demanding better conditions for oil industry workers. Graham Tran, who represents offshore workers at Amicus, said: "It is clear that our continued pleas to the major oil companies such as BP and Shell - who are now raking in £30m in profit every day to invest in the long-term future of the industry, including skills - have fallen on deaf ears."

The third-quarter figure was below the $5bn made in the second quarter of this year, but it puts BP well on the way to its best-ever yearly profit. For the first nine months of 2005, profit was up 25 per cent at $14.9bn, compared with $15.4bn for the whole of last year.

The third-quarter result was held back by an exceptional charge of $921m, related mostly to sale of BP's chemicals business Innovene.

On the production front, the hurricanes caused a loss of 135,000 barrels a day in the third quarter and the company said it expected that to rise to 160,000 barrels in the last quarter. That means the full-year production levels will average 4 million barrels a day, rather than the 4.1 to 4.2 million BP had planned.

Lord Browne said he anticipated oil prices - now about $60 a barrel - to stay "well supported through the winter", before dropping in the medium term to "more like $40".

He added: "A few months of high oil prices don't set a new era. Many people are influenced by the view that oil production has peaked. We don't believe that."

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