BP is making good progress in its drive to improve performance, chief executive Tony Hayward said today as the company announced underlying profits for the third quarter of 2008 of $8.9 billion, excluding non-operating items and fair value accounting effects.
Despite some operational upsets, including hurricane damage in the Gulf of Mexico and interruptions to output from its Caspian fields, BP’s oil and gas production was slightly up on the same period of last year and the underlying result for the refining and marketing business rose by 70 per cent.
“Although it has since fallen away sharply, the high oil price of the third quarter obviously helped our absolute result,” Hayward said. “But this should not obscure very real 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.
“We are making good on our promise to deliver the strategy we laid out earlier this year – upstream growth, downstream turnaround and corporate simplification. We are well-placed to weather the prevailing financial storm and to benefit from the business opportunities that may well arise from a downturn.”
The highlights of today’s results were:
* Replacement cost profit of $10 billion, up 148 per cent on 3Q 2007, including a gain of $1.1 billion from non-operating items and fair value accounting effects.
* Operating cash flow of $14.9 billion, a rise of 133 per cent.
* Upstream underlying pre-tax profit of $11.5 billion, including $849 million from TNK-BP – up from $6.3 billion.
* Slightly higher output of 3.664 million barrels of oil equivalent, but showing an underlying rise of around five per cent after adjusting for oil price impacts on production-sharing agreements.
* Downstream underlying pre-tax profit of $1.3 billion, up some 70 per cent.
* Gearing of 17 per cent, compared with target range of between 20 and 30 per cent.
Confirming a dividend of 14 cents a share payable in December, Hayward said this represented a dollar rise of some 30 per cent and a Sterling rise of over 60 per cent versus a year ago.
“BP is very aware that in the current volatile climate dividends and the strength of balance sheets are a matter of concern to investors, including pension funds. In the UK, for instance, we estimate that our dividend is currently the equivalent of more than 10 per cent of the dividend income paid to pension funds by FTSE 100 companies.
“Our aim remains unchanged – to grow that dividend through time in line with our view of future sustainable performance. As new upstream projects like Thunder Horse come on stream, refinery availability is restored in the US, and the results of cost initiatives begin to deliver, the financial benefits of that performance are showing through. We are steadily and methodically meeting our promises.”
Hayward said that although oil prices could dip further as the world enters recession, “I believe that BP is well-positioned to cope with such volatility. Our balance sheet is strong and we have committed less of our portfolio to high-cost options like tar sands and gas conversion than some of our peers.
“As I said, we think the current turmoil may in fact create opportunities for us and we will look at those very closely.”
Describing the pace of BP’s recovery as one of “steady acceleration”, Hayward said production growth would be underpinned well into the next decade by the series of major projects already under way together with BP’s strong resource base and continuing exploration success. “In refining and marketing, we are closing the competitive gap against our peers.”
Hayward said there would be no let-up in the drive for corporate simplification, continued cost reduction and front-line efficiency in operations. “BP’s workforce across the world has responded powerfully to our determination to make every dollar count. Today’s results reflect those efforts. Our disciplined approach will continue and there is much more we plan to do.”