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BP: H1 Results
BP’s reported second quarter profits of US$4,981m (on a replacement cost basis), 29% ahead of last year, despite a net non-operating charge of US$291m. For the half year, profits were a record US$10,472m compared to US$8,137m last year.
Attributable profits to BP shareholders on a UK GAAP basis were US$12,193m for the half year, up 31.8% over last year.
BP’s non-operating charges include a payment of US$658m on claims due to an accident at the Texas City refinery and US$652m, due to fair value losses on derivatives relating to North Sea gas contracts. These were partly offset by gains including US$1,067m realised on asset sales in the exploration and production business.
The strong result was driven by a good performance in the upstream exploration and production (E&P)business which saw replacement cost profits rise 38% to US$5,903m. The better result was due to higher prices, average hydrocarbon realisations were up 29% (to US$34.86/bbl) while realisations for crude were up 38% to US$45.6/bbl). Production for the quarter was 4,112mboe/d up 3.5% over last year.
The company’s other business have all shown improvement over last year, but are dwarfed by the results of the E&P business. Profits in refining and marketing rose 4.7% to US$2,707m, the growth being slowed by poor retailing margins and a high non-operating charge of US$658m, explained above.
Profits in gas, power and renewables rose 48% to US$578m, boosted by a gain of US$83m on disposal of assets and a further US$109m on the increase in the value of derivatives.
BP’s strong performance comes as no surprise and the overall outlook for the oil industry remains rosy. The concerns are in its production, particularly the risks arising from BP’s dependence on its Russian associate TNK-BP for future growth as output from more fields in more stable locations declines.
Russian policy towards private investment has been a concern following the Yukos affair. BP says TNK-BP’s operational and financial information has been estimated, which does not add to confidence.
The share trades at 642.5p, on a prospective PE of 14.4x (2006 earnings) at the upper end of the sector range, with a yield of 3%.
Note:
Replacement cost profit is not a recognised GAAP definition. It reflects the current cost of supplies. The replacement cost profit for the period is arrived at by excluding from profit inventory holding gains and losses. Inventory holding gains amounted to US$1,721m in the first half of 2005, compared to US$1,110m the previous year.
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