BP Scores Huge $10 Billion Quarterly Profit

BP registered a monumental 148 per cent rise in quarterly profits yesterday that was only partly thanks to the recent high oil price.

As economies around the world shudder at the prospect of approaching recession, the oil giant said that pre-tax profits of $11.5bn (£7.4bn), up from $6.3bn, from the company's upstream operations, and growth of 70 per cent to $.13bn in its downstream activities, contributed to replacement cost profit of $10bn for the group as a whole. Operating cash flow in the third quarter also stood at its highest-ever value, up by 133 per cent to $14.9bn. BP will pay a dividend in December of 14 cents per share, up 30 per cent in dollar terms and 60 per cent in sterling.

Despite the disruption caused by hurricanes and interruptions to output from its Caspian fields, oil and gas production was up by around 5 per cent to just under 4 million barrels of oil equivalent, helped by particularly good performance at the Thunder Horse platform in the Gulf of Mexico.

Tony Hayward, BP's chief executive, was keen to stress the stellar performance is not only because of the ballooning oil price, which hit an unprecedented $147 per barrel in July before plummeting to below $65 this week.

"Although it has since fallen away sharply, the high price of the third quarter obviously helped our absolute result," Mr Hayward said. "But this should not obscure operational improvements in refining and rigorous cost control across the company that kept our cash costs essentially flat compared with last year, despite immense inflationary pressures in the sector."

Despite the expectation of a tough fourth quarter across the industry as oil prices continue to fall and recessionary pressures hamper demand, Mr Hayward remains bullish—even acquisitive—in the face of economic volatility. "We think the current turmoil may create opportunities for us and we will look at those very closely," he said. "Our balance sheet is strong and we have committed less of our portfolio to high-cost options like tar sands and gas conversion than peers."

But the squeeze is already being felt, and BP acknowledged that end user demand for oil products in the US and Europe is weak, with year-on-year demand down 5 per cent, not helped by a sharp cut in American driving habits.

BP's strong performance is acknowledged in the City, and the company's shares closed up 23.5p at 461.5p yesterday. "This is the third quarter in a row that BP has done better than expected, which tends to bear out the view that the Forward Agenda is being delivered," Colin Smith, an analyst at Dresdner Kleinwort, said.

"We would have expected that there would be a decline in comparison with the first or second quarters, partly because of the dropping oil price but also because the third quarter is seasonally weak. But sequentially the numbers are up, not just year on year, so there is pretty clear evidence that it is more than just the oil price."

But with oil down by more than half since the summer, the prognosis for the next three months is weaker. "There is no question that earnings will be down in the fourth quarter because of decline from the exceptional, unsustainably high oil price, but BP is outperforming its market, so we would expect it to suffer less than most," Mr Smith said.

Meanwhile, Paul Skinner, chairman of Rio Tinto, is being tipped to take over the chairmanship of BP when Peter Sutherland steps down in spring.

Oil price falls: Opec warns it may reduce supply for a third time

The oil price ticked up yesterday after oil-producing countries' cartel Opec warned it may cut supply even further to put a floor under the spiralling market. Abdullah el-Badri, Opec's secretary general, told reporters at a London conference yesterday that the continually-falling price may force another emergency summit before the next official meeting scheduled for 17 December in Algeria.

"We will have to wait and see how the market will react, but if this continues then we will have another cut," Mr Badri said. "If he situation deteriorated where we had to have another meeting before Algeria we will do that."

Oil has slumped by more than half since its $147 per barrel high in July. Production cuts from Opec in September and at the end of last week, have done nothing to stop the decline, and Monday saw yet another round of steep drops. The news that Opec might act again had an immediate impact, pushing New York crude for December delivery up nearly $2 to $65 and Brent North Sea for December up over $1 to $62.70 in afternoon trading.