BP, Dow Chemical Post Quarterly Loss as Recession Cuts Demand

By Eduard Gismatullin and Jack Kaskey

Feb. 3 (Bloomberg) -- BP Plc, Europe’s second-biggest oil company, and Dow Chemical Co., the largest U.S. chemical maker, reported fourth-quarter losses as the recession drove oil lower and slashed demand for plastics and industrial projects.

BP had its first quarterly loss in seven years, a shortfall of $3.3 billion after net income of $4.4 billion a year earlier. Dow Chemical lost $1.55 billion after a $472 million profit.

Oil and chemical companies are battling the worst downturn since the Great Depression. BP’s Chief Executive Officer Tony Hayward warned the next year will be tough and forecast weaker oil demand, while Dow Chemical CEO Andrew Liveris said his company has been hurt by a “global economic crisis” and is planning on the recession lasting throughout 2009.

“The environment is very challenging.” Ian Henderson, who manages $7 billion in natural-resource assets at JPMorgan Chase & Co.’s asset management unit in London, said today in a Bloomberg TV interview.

BP’s loss, following a record plunge in crude prices, was 18 cents a share, compared with earnings of 23 cents a share a year earlier. Excluding one-time items and gains or losses from inventories, earnings missed analyst estimates.

Hayward is adding production and refining capacity to boost BP’s earnings, which have lagged behind rivals such as Exxon Mobil Corp. and Royal Dutch Shell Plc. Shell posted its first quarterly loss in 10 years last week of $2.81 billion after lower oil prices reduced earnings from exploration and production and the value of inventories fell.

Thunder Horse

BP’s output rose for the first time in three years as new projects, including the Thunder Horse field in the Gulf of Mexico, were ramped up. Refining availability jumped to a three- year high after the return of BP’s two biggest U.S. refineries.

Excluding one-time items and gains or losses from inventories, profit was $2.6 billion. That missed the $3 billion median estimate of 10 analysts surveyed by Bloomberg News.

BP fell as much as 4.8 percent to 461.5 pence and traded down 2.9 percent at 470.5 as of 1:30 p.m. in London. The shares have lost about 13 percent since crude futures plunged from a record $147.27 a barrel in July. Shell, its larger rival, is down 12 percent in the same period.

Dow Chemicals’ unexpected net loss of $1.68 a share compares with earnings of 49 cents a share a year earlier, the Midland, Michigan-based company said today in a statement. Excluding certain items, it had a loss of 62 cents a share. The average estimate of 11 analysts surveyed by Bloomberg was for profit of 8 cents. Sales dropped 23 percent to $10.9 billion.

Earnings Outlook

“It’s a very nasty set of results,” said Hassan Ahmed, a New York-based analyst at HSBC Securities. “Everyone says January has been tracking December, so you can make a valid case that the first quarter could be far worse than the fourth quarter.” He rates the shares “overweight.”

Dow Chemical fell 74 cents, or 6.7 percent, to $10.31 as of 6:47 a.m. in trading before the official opening of the New York Stock Exchange.

Fourth-quarter net income included $1.06 a share in charges for items including restructuring, goodwill impairment and expenses related to the company’s $15.4 billion takeover of Rohm & Haas Co. and a canceled petrochemicals venture with Kuwait. Dow didn’t provide an update on the status of the merger, which is now the subject of a court case in Delaware.

The revenue decline included a 17 percent drop in sales volumes and a 6 percent drop in global prices, Dow said. Demand declined in all segments and in all regions. Prices dropped 15 percent in the basic-plastics unit and 6 percent in basic chemicals.

Demand Destruction

Dow ran its plants at 44 percent of capacity in December, the lowest ever, and at 64 percent for the full quarter.

“With a global economic crisis unfolding during the quarter, we responded with speed and urgency to get ahead of the demand destruction that continued to accelerate as we approached the end of the year,” Liveris said in the statement.

Dow in December said it is eliminating about 5,000 jobs, or 11 percent of the global workforce, permanently closing 20 facilities and idling 180 plants. Dow’s contractor workforce is being cut by 6,000 globally.

The U.S. economy, the world’s largest, may contract at a 5.5 percent annual pace this quarter after declining at a 3.8 percent rate in the last three months of 2008, according to a forecast by economists at Morgan Stanley in New York. Last quarter’s drop was the biggest since 1982.

Global Downturn

The U.S., Japan and Europe are simultaneously in a recession for the first time since World War II. The International Monetary Fund last week projected global growth this year at 0.5 percent and said losses from the credit crisis will total $2.2 trillion.

ConocoPhillips, the third-largest U.S. oil producer, posted its biggest loss on record on Jan. 28 after the collapse in energy prices dragged down the value of acquired assets. Earnings exceeded analyst estimates on increased output.

ConocoPhillips, based in Houston, reported its fourth- quarter net loss was $31.8 billion, or $21.37 a share, compared with profit of $4.37 billion, or $2.71, a year earlier. Excluding such items as $34 billion in costs recorded to reflect a drop in asset values, per-share profit was $1.28, 4 cents above the average of analyst estimates compiled by Bloomberg.

Exxon Mobil Corp., the biggest U.S. oil company, reported fourth-quarter earnings Jan. 30 of $7.82 billion, beating analyst estimates as higher refining profit softened the impact of falling oil prices.

Chevron Corp., based in San Ramon, California, said the same day its profit rose less than 1 percent to $4.9 billion. Excluding a gain on an asset exchange, profit was about $2.14 a share, 32 cents higher than analysts estimated.

-- With reporting by Mark Barton in London and Bob Willis in Washington. Editors: Guy Collins, Stephen Cunningham

To contact the reporters on this story: Eduard Gismatullin in London at egismatullin@bloomberg.net; To contact the reporter on this story: Jack Kaskey in New York at jkaskey@bloomberg.net.