Refinery problems and rising costs to hit BP results

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BP conceded yesterday that its operational performance in the third quarter of the year has been severely damaged by a series of problems at the oil giant, but refused to comment on reports that it is planning to axe jobs and restructure its business.

The company said it had been hit by a decline in oil refining margins at a time when its two largest US refineries, in Texas City and Whiting, are operating significantly below full capacity. It has also been damaged by a fall in US gas prices, and rising costs.

Shares in BP fell almost 3 per cent, down 17p to 572.5p, after the leaking of an internal memo in which the chief executive, Tony Hayward, warned staff about the company's performance.

Mr Hayward told staff that the company's share price performance, relative to its peers, was worse than at any time since 1993, and that the company's problems were bound to hit revenues.

Analysts said a shake-up at BP was overdue, though Richard Griffiths, of Evo Securities, said Mr Hayward's warnings could mark the beginning of a recovery for the company.

"This could be an inflection point for BP's shares," Mr Griffiths said. "[Previous] turning points were all characterised by corporate failures that resulted in organisational failures."

BP is set to announce third-quarter figures on 23 October and may be able to ride out its operational difficulties with profits benefiting from sustained rises in oil prices over the summer.

However, Mr Hayward has already promised to streamline the company's structure, by moving managerial staff to more front-line roles.

The company's shares have fallen by nearly 5 per cent since the beginning of July, compared with a 1 per cent fall from the oil sector as a whole. The company is banking on a return to full capacity at its US refineries next year, as well as new production streams coming on line in African and the Mexican Gulf.