BP's profits plunge 46% in fourth quarter, pushing 2001 results lower

Feb. 12, 2002
BP PLC Tuesday said its fourth quarter profits were badly hit by the falling world oil price, plunging 46% to $2.2 billion, but the company has more oil and gas development opportunities than it can undertake.

By the OGJ Online Staff

LONDON, Feb. 12 -- BP PLC Tuesday said its fourth quarter profits were badly hit by the falling world oil price but it has more oil and gas development opportunities than it can undertake.

CEO John Browne said Tuesday BP "can choose on the basis of suitability for BP and, more importantly, we can say 'no' when a project doesn't suit."

He said that was why BP pulled out of the $4 billion project to build an east-west pipeline across China. Affiliates of Royal Dutch/Shell Group and ExxonMobil Corp. are still negotiating with the Chinese oil and gas industry. BP is still involved in two major petrochemical developments in China and in exploration in the South China Sea.

He also said that BP would not necessarily bid to explore the Arctic National Wildlife Refuge coastal plain if the US decided to open the northeastern Alaska area for development. He said BP would apply determine if its participation was economic, environmentally acceptable, socially acceptable, and if it fitted BP's overall strategy.

Following a period when it has acquired the assets of Amoco Oil Co., Atlantic Richfield Crop., Burmah-Castrol Ltd., and more recently the Veba Oel AG downstream business in Germany, Browne indicated that BP was entering a period of organic growth.

BP reported that its net profits almost halved in the last quarter of 2001 compared with a year earlier. Net profits fell 46% to $2.2 billion from $4.1 billion during the last quarter of 2000. For 2001, BP had $13.2 billion in net profits, down from $14.2 billion in 2000, but still was the UK's most profitable company. BP increased oil and gas production 5.5% last year and cut costs by $800 million.

BP shares rose as much as 10.5 pence, or 1.9%, to 552 pence in London after the announcement, valuing the company at more than $178 billion. The stock has declined 9.9% in the past year, while ExxonMobil slid 10% and Shell fell 20% in London.

Browne said, "This is a strong result in a mixed year. We have met our targets to improve underlying performance by $2 billion and boost our annual production rate by 5.5%. We have also again significantly more than replaced our production, which is a good indicator of the sustainability of the growth of the company.

"General economic slowdown, and a sharp fall in oil and gas prices, certainly made for tough going. Following our strategy in a disciplined way, we were able, despite the external climate, to deliver growth in volumes while at the same time enhancing underlying returns.

"Demand for oil and gas is weaker than last year because of the global economy, a mild US winter, and reduced jet fuel demand following the events of Sept. 11. The crude oil market looks broadly balanced for the first half of 2002, if OPEC's latest round of quota reductions offset current demand weakness. Additional OPEC oil may be required in the second half of the year to balance the market if demand improves in line with an economic recovery."

BP said that in the US, a combination of economic recovery and lower gas prices may boost demand in 2002 while lower drilling activity curtails domestic production growth. It said UK gas fundamentals had improved following cold weather across Europe in November and December, although prices have eased with warmer weather.

"Refining margins have been poor so far in 2002 and may remain under pressure in the near term because of weak oil product demand growth and relatively high inventories, especially in the key US market. Retail margins are currently weaker due to intense competitive pressure."

Browne said, "Our strategy and targets are unchanged. BP's achievements in 2001 reaffirm our confidence in continuing to invest in our strong portfolio of opportunities, while continuing to achieve our targeted returns. This will result in underlying growth within a tightly controlled financial framework."

Financial analysts reacted favorably to the BP results, pointing to its rate of increasing reserve of oil and gas being higher than its competitors.

BP discovered almost twice as much oil as it produced in 2001, in part by finding new fields and improving rates of recovery at existing sites. By comparison, Royal Dutch/Shell Group found new reserves equal to 74% of last year's output. The BP reserve replacement ratio was 191% with 2.2 billion boe booked through extensions, discoveries, revisions, and improved recovery. Replacement exceeded production for the eighth consecutive year.

Production for the quarter was a record 3.5 million boe/d, which was up over 3% compared with a year ago. Liquids production increased more than 4% and benefited from new production from Girassol field off Angola, Northstar in Alaska, and Qinghangdao in China as well as further production increases in Norway and the Gulf of Mexico.

Natural gas production for the quarter was up 1.5%. This included record production in North America of 4.2 bcfd.

BP said as output rose the falling world oil price meant that profits from E&P halved to $2.37 billion. BP on average received $17.72/bbl for its oil, down 37% from a year ago, and $2.28/tcf of gas, down 39%.