More on BP
BP: Q1 Results
BP reported a 29% growth in post tax profits for the 1st quarter of 2005. Total revenue grew by 14.8% to US$81,008m and profits before interest and taxation grew 34% to US$9,476m.
The bulk of the growth came from the exploration and production business where profits grew 52.7% to US$6,491m and in refining and marketing where profits grew 60% to US$2,363m. The better refining and marketing profits is a little surprising (this ‘downstream’ business uses crude oil as an input and thus tends to suffer when prices are high, unless prices of finished products also increase.) Refining profits have grown strongly in America (up 72.7% to US$1,429m) and in Europe (up 97.3% to US$835m). BP has incurred losses in refining in the UK but has managed to maintain margins in the rest of the world.
The relatively small gas, power and renewables business reported profits of US$418m, a significant improvement from the US$191m reported in the first quarter of 2004.
Average production rose marginally to 4,101 mboe per day (2004:4,015 mboe) but the bulk of the growth is attributed to increases in average realisations which rose 26.8% to US$33.6/boe (for total hydrocarbons, crude, gas and liquids). Realisation on crude oil were better than average, growing 38% to US$43.37/barrel.
The medium term outlook on oil prices is still strong (we expect prices of between US$40-50 per barrel) and the general outlook on the stock is still favourable.
The main concern surround the company’s Russian operation TNK-BP. BP says “TNK-BP operational and financial information has been estimated” which is a little worrying considering that the growth in BP’s output is attributed to increased production in Russia. (TNK-BP has reported a 16% growth in production to 966mbo/day and a 81.8% increase in post tax profits to US$ 411m).
More worrying is the statement that TNK-BP has received tax notifications in respect of 2001 for US$1bn, a problem that Yukos faced. BP says “discussions between TNK-BP and the Russian authorities are ongoing” and that “BP has extensive indemnities from our co-joint venturers in respect of historic tax liabilities”. BP expects the eventual tax settlement to be significantly lower than $1bn.
BP has had bitter experience in Russia (which accounted for around 23% of BP’s crude production this year) with its previous investment where a questionable bankruptcy case deprived it of its stake in one of the country’s largest oil fields. Russia also abruptly increased export duty on oil from the 1st of August 2004 which is estimated to have cost the company $170m for the fourth quarter of 2004.
The stock trades at 543p on a PE of 12.4x (2005 prospective earnings) with a yield of 3.2%. The Russian tax problem could open some interesting short term trading opportunities.
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