BP hit as production slips again

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BP's woes deepened yesterday as the oil giant reported a fall in fourth-quarter output, hitting its shares and raising expectations that the company will be forced to scale back production targets further.

The news came as the oil price continued to plunge, falling by more than $2 a barrel to its lowest level in 18 months as the abnormally mild winter weather in the US hit demand.

BP, which has been assailed by a series of environmental disasters, fatal accidents, criticism from safety regulators, boardroom ructions and accusations of market manipulation, said oil and gas production in the final three months of 2006 was expected to be 3.82 million barrels a day. This is 5 per cent down on the same period a year earlier and some 100,000 barrels less than analysts had forecast.

The company also disclosed that refining margins had fallen by 17 per cent compared with a year earlier while margins on petrol retailing had also reduced significantly.

BP shares, which have been one of the worst performers in the sector, fell by more than 3 per cent to a 20-month low, ending the day 17p lower at 535.5p.

The company blamed the decline in output on lower production from its Prudhoe Bay field in Alaska, which was hit by pipeline spillages last year, unusually low demand for gas and Opec quota restrictions.

Output from the company's Russian joint venture TNK-BP also fell sharply, although this was mainly due to the sale of fields, which netted $900m in the third quarter.

The quarterly decline was the sixth in a row and leaves BP's production for 2006 as a whole at 3.92 million barrels a day compared with a target at the start of the year of 4.1 to 4.2 million barrels. Analysts downgraded their forecasts of fourth-quarter profits by between 6 and 17 per cent and cautioned that the company's goal of increasing production by 4 per cent to 2010 was now in doubt.

Jonathan Wright of Citigroup said in a research note: "We expect BP will need to scale back production growth expectations."

The latest setback represents further bad news for BP's much-feted chief executive Lord Browne, who was embroiled in a damaging dispute last year with his chairman, Peter Sutherland, over the timing of his departure.

At the same time, the premium that BP once enjoyed over its rivals has evaporated. BP's stock market valuation has dropped by a quarter since last May.

The latest decline in the oil price means that it has now fallen 12 per cent since the start of the year. Brent crude traded $1.28 lower at $54.32. Opec has pledged to slow output in an attempt to put a floor under the price but dealers remain sceptical that the production cuts will be met in full while analysts warn that prices could fall further as hedge funds short the market.