BP hit by third quarter profit slump quarter

Oct 23, 2007, 15:21 GMT

London - Oil giant British Petroleum (BP) suffered a 45 per cent fall in third-quarter profits to 3.87 billion dollars (2.7 billion euros), following a slowdown in production and ongoing problems at its refineries in the US.

Profits for the three months to the end of September slumped from 6.98 billion dollars during the comparative period a year ago, as oil and gas production fell by 4 per cent, the company said in London Tuesday.

Calculated over nine months, BP's profits fell by 22 per cent to 18.35 billion dollars from 14.31 billion dollars for the first three quarters of 2006.

Analysts said the results are a blow for BP which has seen a turbulent year following refinery problems in the US and the departure of its high-profile chief executive, John Browne, in May.

A critical US report into an explosion at BP's Texas City refinery in 2005, which killed 15 people, found 'material process safety deficiencies' at the company's five US refineries.

A poor result had been expected by analysts after new BP chief executive Tony Hayward reportedly described BP's operating performance as 'dreadful' last month, but the figures were even lower than anticipated, experts said.

Operational difficulties and higher maintenance and repair charges at refineries saw profits from BP's refining and marketing division slump from 1.5 billion dollars to just 376 million dollars, the results showed.

Richard Hunter, head of UK equities at stockbroker Hargreaves Lansdown, said BP's results were disappointing but added that the oil giant could be over the worst.

'The difficulties in the production and refining areas have, as expected, materially affected profits for the quarter. This being said, the outlook for the remainder of the year looks promising,' he added.

'The challenges may not be over but at least the rot seems to have been stopped,' said Hunter.

The recent oil price highs should underpin performance, along with the resumption of projects such as the Gulf of Mexico, and in the foreseeable future, the Texas refinery, which should return to full capacity,' said Hunter.

Two weeks ago, Hayward unveiled plans to shake up the operational performance of the company in a 'fundamental shift' which will see the company strip out management layers and reduce overhead costs.

Hayward said that BP's performance had 'materially lagged' its rivals for the last three years and criticized the 'complexity of the business.'

Under his wide-ranging plans to streamline BP, the layers of management would be reduced from 11 to seven and the number of business units the company is divided into would be cut from three to two.

Hayward has said he believed that BP's revival would begin before the end of the year as fourth-quarter earnings would benefit from major new production coming on stream and refinery volumes would increase following temporary shutdowns and overhauls.