BP's Second-Quarter Profit Rises on Record Oil Prices

By Eduard Gismatullin and Fred Pals

July 29 (Bloomberg) -- BP Plc, Europe's second-largest oil company, said second-quarter earnings rose 28 percent as crude surged to a record and natural-gas prices increased.

Net income advanced to $9.47 billion, or 49.80 cents a share, from $7.38 billion, or 38.18 cents, a year earlier, the London-based company said today in a statement. Excluding inventory changes and one-time items, profit beat analysts' estimates.

BP said it will continue to seek a resolution to a shareholder dispute at TNK-BP, its joint venture in Russia that accounts for almost a quarter of the company's total output. U.S. oil futures climbed above $140 a barrel for the first time in June and gas prices were 50 percent higher on the year.

``It is a good set of results but clouded by the uncertainty over TNK-BP,'' Bertrand Hodee, a Paris-based analyst at Kepler Equities, said today in a telephone interview. Hodee recommends buying BP shares.

Chief Executive Officer Tony Hayward is bringing new production and refining capacity on line to improve earnings, which have lagged behind rivals such as Exxon Mobil Corp. and Royal Dutch Shell Plc. BP expects to add about 650,000 barrels a day of oil equivalent to output through 2009.

Of the 31 analysts tracked by Bloomberg who cover BP, 19 recommend buying the shares, 10 advise holding the stock and two say ``sell.''

Shares Gain

BP gained 14 percent in the second quarter, lagging behind a 19 percent gain for larger rival Shell, which reports earnings in two days' time. BP today rose as much as 3.6 percent to 538 pence. The stock traded up 17 pence at 536.50 pence as of 10:20 a.m. in London.

Excluding one-time items and gains or losses from inventories, profit was $8.63 billion. That exceeded the $7.84 billion median estimate of 10 analysts surveyed by Bloomberg.

The results ``look very good, they are generating cash flow, the profits that everyone hopes they should be generating in the very high oil price markets,'' Andy Lynch, a portfolio manager who oversees $2.9 billion at Schroder Investment Management Ltd. in London, said in an interview. ``And they are actually also looking to invest more money into refinery assets.''

Profit from turning crude into fuels such as gasoline and diesel fell by half to $8.19 a barrel in the second quarter from $16.61 a year earlier, according to BP data. Crude outpaced gains in fuels, reducing earnings at BP by about $2.2 billion, according to the report.

Refining Margins

The results ``reflected the adverse impacts of significantly lower refining margins, particularly in the U.S.,'' BP said. ``This more than offset the benefits of the underlying performance improvement of our U.S. refining operations.''

Crude oil and gas production totaled 3.83 million barrels of oil equivalent a day in the quarter, little changed from a year earlier and in line with analysts' estimates. Oil refining rose to 2.24 million barrels a day from 2.13 million a day on higher output from BP's U.S. refineries at Texas City and Whiting.

Together with partners, BP has started oil and gas production at Angola's Kizomba C and Greater Plutonio fields in the past 10 months, along with exports from the Atlantis platform in the Gulf of Mexico. BP also plans to have four wells open at the long-delayed Thunder Horse field by the end of the year.

BP invested $14.8 billion in projects and acquisitions in the first half and reiterated a forecast of as much as $22 billion in capital spending, excluding acquisitions, this year.

TNK-BP Spat

Robert Dudley, who heads up BP's Russian venture, fled the country last week because of ``sustained harassment'' from a group of TNK-BP shareholders who accused him of mismanagement. Dudley has said he has no plans to step down and will continue running the company from abroad.

BP is locked in a dispute with its billionaire co-owners in TNK-BP -- Viktor Vekselberg, Mikhail Fridman, German Khan and Len Blavatnik - known collectively as AAR, who have demanded Dudley's dismissal for treating the venture as a subsidiary of the U.K. oil producer.

BP has already been forced to withdraw technical specialists from Russia because of problems securing visas and work permits. In today's statement, the company said it's ``not possible to predict the outcome if these matters remain unresolved.''

``Russia is a huge resource holder,'' said Jason Kenney, an analyst at ING Wholesale Banking in Edinburgh. ``I think BP has to think for the long game. I think they're going to work this one through.''

Acquisitions

Earlier this month, BP agreed to buy Oklahoma gas properties from Chesapeake Energy Corp. for $1.75 billion, targeting fuel from rock formations that are more costly to exploit than traditional fields.

On July 1, BP also bought for $210 million the Whiting Clean Energy facility, a 525-megawatt gas-fired power plant in Whiting, Indiana, from the U.S.'s NiSource Inc.

BP will pay a 14 cents-a-share dividend for the second quarter in September, up from 10.825 cents last year, the company said. It bought back $1 billion of shares in the quarter.

To contact the reporters on this story: Eduard Gismatullin in London at egismatullin@bloomberg.net; Fred Pals in Amsterdam at fpals@bloomberg.net