BP profits slide 22 per cent

Tuesday 05 February 2008 08:55 GMT

Oil giant BP today pledged to close the "performance gap" with its rivals after a 22% fall in profits last year.

The world's third biggest oil firm saw profits tumble to $17.29bn (£8.76bn) in 2007 as problems with its US refineries hit the company.

But chief executive Tony Hayward cheered investors with a 25% dividend hike and progress on plans to create a leaner business by stripping out management.

He confirmed BP's plans to cut 5,000 jobs by the middle of next year, as well as slashing the firm's corporate overheads by up to 20%.

He said: "We are absolutely determined to transform our downstream business as a whole. It will not happen overnight, but we believe that the performance gap with our competitors can be progressively narrowed in the next few years."

The results contrast with rival Royal Dutch Shell, which last week posted record profits of almost £14 billion.

The figures cap a turbulent year for BP, whose long-serving head Lord Browne resigned last May after he lied to a court in a bid to block stories about his private life.

It also faced criticism over the March 2005 explosion at its Texas City refinery, where 15 workers died.

But today shares rose almost 3% as hopes grew for a turnaround of the business.

Hargreaves Lansdown equity analyst Keith Bowman said: "Overall, 2007 was not a vintage one for BP, but the early signs for 2008 are encouraging.

"Despite falling profits over both the fourth quarter and the full year, signs of improving prospects for 2008 are tangible."

BP has struggled with lower margins and production problems with its US refineries, which sent its refining and marketing operation to a fourth-quarter loss of $1.34bn (£678.7m).

Mr Hayward said the performance of refining and marketing was "very poor - despite the fact that we have a strong set of assets".

"The principal reason is poor reliability in some of our US refineries, which is compounded by the complexity and overhead structure of the business segment," he added.

This loss left the group's overall underlying fourth-quarter profits at $4bn (£2.02bn) - well below consensus forecasts of $4.3bn (£2.17bn).

But earnings from the firm's exploration and production division lifted 51% to $7.65bn (£3.87bn) after an improved performance in the final three months of last year.

The group began production from five major projects in Angola, Trinidad and the Gulf of Mexico, and enjoyed exploration successes in Azerbaijan and Egypt.

Over the year, BP produced 3.82 million barrels a day of oil equivalent a day from its E&P division - just inside its forecasts of between 3.8 and 3.9 million.

Mr Hayward added: "We made good, step-by-step progress in bringing new oil and gas fields on stream and rebuilding refining capacity during the period."

The chief executive added that he would boost capital spending by more than 10% to up to $22bn (£11.1bn) in 2008 to raise production levels.

The company is looking to produce more than four million barrels of oil a day in 2009, rising to 4.3 million in 2012, and is now pricing an assumption of crude oil prices at around $60 a barrel into its plans.

BP paid out restructuring costs of $250bn (£126.7bn) in the final three months of 2007 and expects to pay a further $1bn (£506.7m) over the course of this year.

Mr Bowman added: "Production levels have finally begun to improve, cost savings from the group's recently announced restructuring plan should begin coming through and a marked increase in the dividend helps provide underlying support to the share price."

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