BP hit by extreme weather in Russia

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The Independent Online

BP has endured a third successive quarter of falling production, the oil and gas giant revealed yesterday, after extreme cold weather in Russia and continuing problems in the Gulf of Mexico from last year's hurricanes.

The company reported that production for the first quarter of 2006 came in at 4.025 million barrels per day (mbpd), whereas the City had expected output to roughly match the 4.101 mbpd achieved for that period in 2005.

Temperatures even colder than normal in Russia in the winter meant ice in rivers and on the Baltic coast interfered with shipping out oil for export.

Last year, BP saw year-on-year drops in production for the fourth and the third quarter as a result of the ferocious hurricane season in the Gulf of Mexico, which hit output from the region.

In a trading update for the first quarter of this year, issued yesterday, BP said there had been a "progressive return" of production in the Gulf of Mexico. This enabled output, excluding volumes from BP's joint venture in Russia, to rise compared to the end of last year.

Peter Hitchens, an analyst at Teather & Greenwood, said he expected the Gulf of Mexico to have recovered more quickly. He pointed out it was still 70,000 bpd short of the output levels before hurricanes Katrina and Rita struck. But he added the City expected the company to meet overall production forecasts for 2006. "I'm not unduly concerned. Yes, if there were another three quarters [of production declines] I would get worried," Mr Hitchens said.

BP is banking on a series of fields coming on-stream this year to make up for the first quarter shortfall, especially in the Gulf of Mexico - assuming there is no repeat of the 2005 hurricane season. These fields include Thunder Horse, which was delayed from last year, and Atlantis. Elsewhere there will be new production in regions ranging from the Caspian Sea to Algeria.

Aside from the production figures, the trading update was seen as positive, with BP shares closing up 10p at 675p. There was better-than-expected news on the refining business, a lower-than-expected tax rate, lower interest charges and a significant improvement in margins at BP's gas and power unit.

The average price achieved per barrel of oil in the first quarter of this year was $61.79, sharply up on the $47.62 a year earlier. Analysts said if prices remained that high, 2006 profit forecasts for BP would have to be revised upwards. BP also said it expected a better operating performance from its refining assets.

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