BP's Replacement Cost Profit Increases 48%

BP reported its first quarter 2008 results, which included the following highlights.

BP's first-quarter replacement cost profit was $6,588 million, compared with $4,444 million a year ago, an increase of 48%.

Non-operating items and fair value accounting effects for the first quarter had a net $4 million unfavourable impact compared to a net $36 million favourable impact in the first quarter of 2007. Non-operating items for the first quarter included a pre-tax charge of $307 million for restructuring, integration and rationalization costs associated with BP's forward agenda.

Net cash provided by operating activities for the quarter was $10.9 billion compared with $8.0 billion a year ago.

The effective tax rate on replacement cost profit(b) for the quarter was 37%; the rate was 34% a year ago.

Net debt at the end of the quarter was $23.8 billion. The ratio of net debt to net debt plus equity was 19% compared with 20% a year ago. Net debt has been redefined.

Capital expenditure, excluding acquisitions and asset exchanges, was $7.1 billion for the quarter. Total capital expenditure and acquisitions was $9.0 billion. Capital expenditure excluding acquisitions and asset exchanges, and excluding the accounting for our transaction with Husky, is expected to be around $21-22 billion for the year. Disposal proceeds were $0.3 billion for the quarter.

The quarterly dividend, to be paid in June, is 13.525 cents per share ($0.8115 per ADS) compared with 10.325 cents per share a year ago, an increase of 31%. In sterling terms, the quarterly dividend is 6.830 pence per share, compared with 5.151 pence per share a year ago, an increase of 33%. During the quarter, the company repurchased 91 million of its own shares for cancellation at a cost of $1 billion.

The replacement cost profit before interest and tax for the first quarter was $10,072 million, an increase of 60% over the first quarter of 2007. This result benefited from higher oil and gas realizations and a higher contribution from the gas marketing and trading and LNG businesses. This was partly offset by higher costs, primarily reflecting the impacts of higher depreciation and sector-specific inflation. The result also included higher income from equity-accounted entities, primarily from TNK-BP due to higher prices. In addition, BP's share of income from TNK-BP benefited from the effect of lagged tax reference prices.

The result included a net non-operating charge of $376 million with the most significant items being fair value losses on embedded derivatives partly offset by the release of certain provisions. The corresponding quarter in 2007 contained a net non-operating gain of $757 million. In the first quarter, fair value accounting effects had an unfavourable impact of $259 million compared with a favourable impact of $31 million a year ago.

Reported production for the quarter was 3,913mboe/d and was flat compared with the first quarter of 2007. After adjusting for the impact of lower entitlement in our production-sharing agreements (PSAs), production was more than 5% higher than the first quarter of 2007. This primarily reflects the ramp-up of production following the startup of major projects in 2007. As previously indicated, if oil prices remain at $100 per barrel we expect 2008 reported production to be broadly flat compared with 2007, with underlying production growth being offset by PSA entitlement impacts. We expect the quarterly phasing of underlying production during the year to reflect the normal seasonal effects associated with turnaround activity in the second and third quarters.

During the quarter, we had first production from the Mondo field within the Kizomba C development in Angola, where BP holds a 26.67% interest. Shortly after the end of the quarter, production commenced at Deep Water Gunashli on schedule; this completes the third and final phase of development of the Azeri-Chirag-Gunashli field (BP 34.1% and operator) in the Azerbaijan sector of the Caspian Sea. We had exploration success in Angola with the Portia discovery, in Egypt with the Satis discovery and in the North Sea with a discovery close to the Foinaven production facility.

On 31 March, we completed the deal with Husky Energy Inc. to create an integrated North American oil sands business by means of two separate joint ventures, one of which gives BP a 50% interest in Husky's Sunrise field in Alberta, Canada. Capital expenditure of $2,848 million in respect of this transaction is reflected in the first quarter of 2008.

Shortly after the end of the quarter, we announced the Kodiak discovery in the deepwater Gulf of Mexico and, jointly with ConocoPhillips, announced that we have combined resources to start Denali The Alaska Gas Pipeline.


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