LONDON (Dow Jones Newswires), July 26, 2011
BP faced fresh scrutiny from investors Tuesday after quarterly earnings beat last year's level but came in below expectations following a big drop in oil and gas production.
BP posted a 12% rise in adjusted profit for the second quarter as it benefited from higher crude prices and better refining margins. But oil and gas production fell a whopping 11% compared with the 2010 quarter due in part to anemic output in the Gulf of Mexico and unexpected maintenance in the North Sea and Angola.
BP shares were down 11 pence to 464p at 803 GMT, the biggest drop Tuesday morning in the FTSE 100. Analysts also had pointed questions on the slow resumption of BP activities in the Gulf of Mexico, its growth strategy after the demise of a major proposed deal in Russia and the effectiveness of much-touted safety upgrades following a recent fire in the North Sea that has further crimped output.
The U.K.-based energy giant said its clean replacement cost of supplies, a keenly-watched figure that strips out gains or losses from inventories and other non-operating items, for the three months ended June 30 totaled $5.60 billion, compared with $4.98 billion for the second quarter of 2010.
This was below expectations of $6.04 billion in a Dow Jones Newswires poll of 11 analysts. BP said this was due to the loss of production from high-margin areas, such as Angola and the North Sea.
BP Chief Executive Robert Dudley said the company is "making rapid progress" and that the results are in line with expectations that 2011 would be a "year of consolidation" after the travails of recent years.
Total oil and gas production was 3.43 million barrels a day, a decline of almost 11% on the year. BP said that after adjusting for acquisitions and divestitures and entitlement impacts from production agreements, the output decrease was 7% compared with the same period of 2010.
"BP appears to be running a business as usual strategy and we are not convinced that the market will put up with this for much longer," said analyst Dougie Youngson from Arbuthnot Securities. "BP has been significantly under-performing the peer group for some time and this looks set to continue."
Royal Bank of Canada analyst Peter Hutton said investors are anxious about BP's difficulty controlling costs compared with peer companies. A complicating factor is the slow progress in resuming operations in the U.S. Gulf, Hutton added. "Other operators are getting things through and BP has a sum total of zero approvals," Hutton said. "When you rank BP against the others, it is quite stark."
Copyright (c) 2011 Dow Jones & Company, Inc.
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