BP Posts First Quarterly Loss in Seven Years on Oil

By Eduard Gismatullin and Fred Pals

Feb. 3 (Bloomberg) -- BP Plc, Europe’s second-biggest oil company, reported its first quarterly loss in seven years as the global recession spurred a record plunge in crude prices.

The loss was $3.3 billion, or 18 cents a share, compared with net income of $4.4 billion, or 23 cents, a year earlier, London-based BP said today in a statement. Excluding one-time items and gains or losses from inventories, earnings missed analyst estimates.

Chief Executive Officer Tony 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. 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.

“Production came in higher than expected and that is positive,” Gudmund Halle Isfeldt, an Oslo-based analyst at DnB NOR ASA who has a “buy” rating on the stock, said in a telephone interview. “Refining was a slight disappointment.”

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 3.2 percent to 469.5 pence as of 8:34 a.m. in London. The shares have lost about 13 percent since crude futures slipped from a record $147.27 a barrel in July. Shell, its larger rival, is down 12 percent in the same period.

Shell, Exxon

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.

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

Crude futures tumbled by a record 56 percent in the fourth quarter. Hayward said last week that crude prices between $60 and $80 a barrel are “appropriate” to sustain investments. Oil prices traded at $40.49 today.

Of the 36 analysts that cover BP, 24 recommend buying the stock, 10 have “hold” recommendations and two advise clients to sell the shares.

Close Gap

In a statement, Hayward said BP has closed about $2 billion of a “performance gap” with rivals in refining and marketing from last year.

“Full economic capability has been rebuilt at the U.S. Texas City and Whiting refineries and refining availability in the fourth quarter rose to 91 percent,” the company said.

BP’s Texas City refinery had been running at reduced capacity since 2005. The company shut the refinery in advance of Hurricane Rita in September 2005, eight months after an explosion that killed 15 workers. The refinery in Whiting, Indiana, has increased production since a fire in April 2007 shut down operations.

The Texas City plant can process 475,000 barrels a day of crude oil. The Whiting refinery can handle 420,000 barrels.

BP said its global refining availability rose to 91.4 percent in the fourth quarter, from 87.7 percent in the third quarter and 84 percent in the year-earlier quarter.

“I also envisage our refining availability will be materially higher this year than last,” Hayward said.

Higher Output

Crude and gas output increased to 3.838 million barrels of oil equivalent a day in 2008, from 3.818 million barrels a year earlier. Fourth-quarter production rose 1 percent to 3.945 million barrels of oil equivalent a day, compared with a year earlier.

BP was expected to report a 1.5 percent drop in oil and gas production to 3.85 million barrels of oil equivalent a day in the quarter, according to the median estimate of five analysts.

BP will maintain investments excluding acquisitions between $20 billion and $22 billion this year.

The company plans to dispose of assets worth about $2 billion to $3 billion. BP spent a total of $30.7 billion last year, of which $21.7 billion was invested in projects, it said today. It also bought assets from Chesapeake Energy Corp. and carried out a transaction with Husky Energy Inc. in 2008.

BP settled a dispute over the running of the company’s joint venture in Russia last year with its billionaire co-owners after Hayward agreed to replace TNK-BP’s CEO Robert Dudley.

The accord left BP with its stake in the 50-50 venture intact while acceding to demands by the Russian billionaires -- Mikhail Fridman, German Khan, Viktor Vekselberg and Len Blavatnik, collectively known as AAR -- for a more independent board. TNK-BP accounts for almost a quarter of BP’s global output and reserves.

New Shortlist

Vekselberg said last week that shareholders are in “no rush” to appoint a new CEO after talks with Denis Morozov, the former head of Russia’s biggest mining company, stalled. BP has said it will provide a new shortlist of candidates to run the venture in the next few weeks.

Refining margins, or profits from turning crude into fuels such as gasoline and diesel, have also come under pressure.

BP’s Global Indicator Margin, a broad measure of refining profitability, slipped to $5.20 a barrel in the fourth quarter from $5.69 a year earlier, according to data posted on BP’s Web site.

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