Slump in crude oil price lops 29% off BP's profits

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The Independent Online
BP YESTERDAY blamed the slump in oil prices to their lowest level in a decade for a sharp fall in second-quarter earnings

The oil giant's profits fell 29 per cent to pounds 542m in the second three months of 1998 as the oil price collapsed on overproduction and slowing demand. First-half profits were down 26 per cent year-on-year to pounds 1.71bn. The interim dividend was up 9 per cent to 11.75p a share.

The figures were at the top end of analysts' expectations for profits of between pounds 465m and pounds 552m. The City took the numbers in its stride, with shares in BP closing 2p higher at 812p.

Sir John Browne, the chief executive, said that the price of benchmark Brent crude had fallen by almost a third in the past year, averaging $13.50.

The plunging oil price had a negative effect on BP's core businesses - production, retailing and chemicals - and was only partially offset by a renewed drive to cut costs and increase efficiency, he said. "This is a good result in a difficult business environment, with all the three businesses continuing to reduce costs and grow volumes."

The cost-cutting exercise, launched in March, delivered a $75m (346m) gain in the quarter as BP set stringent restrictions on managers' travel and on its $1bn-a-month procurement budget. The joint venture with Mobil to pool petrol retail operations across Europe contributed a further $200m saving and was on course to achieve the $300m target by year-end, Sir John said.

However, profits in the refining and marketing division, which include forecourt retailing, fell to pounds 299m from pounds 308m. Analysts said the figures had been hit by a fall in refining margins and by competition in the UK petrol station market, where BP has suffered since the arrival of cut- price supermarket retailers. Earnings in the exploration and production division were also down to pounds 447m from pounds 695m a year ago.

Mr Browne said BP had to rely on its own resources to keep profits in a depressed market. "We can't rely on any help in the near term from the [oil price] environment. Demand remains weak and stocks high. Our performance in the near future depends on our own efforts".

Analysts predicted that BP's share price would rebound if oil prices recover later this year, as expected.