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BP Profit Falls Less Than Estimated as Dudley Increases Asset-Sales Target

By Brian Swint
October 25, 2011 12:00 PM EDT
Oil and gas production fell 12 percent from a year earlier to 3.3 million barrels of oil equivalent a day.
Photographer: Jason Alden/Bloomberg
Oil and gas production fell 12 percent from a year earlier to 3.3 million barrels of oil equivalent a day.

BP Plc (BP/), the operator of the Macondo well in the Gulf of Mexico that caused the worst ever U.S. oil spill last year, said profit declined less than expected as it increased an asset sales target 50 percent to $45 billion.

Third-quarter earnings adjusted for one-time items and changes in inventory were $5.3 billion, down from $5.5 billion a year earlier. The average estimate of 12 analysts surveyed by Bloomberg was for profit of $5 billion on that basis. Oil and gas production fell 12 percent from a year earlier to 3.3 million barrels of oil equivalent a day.

Chief Executive Officer Bob Dudley plans to increase the company’s cash flow by 50 percent by 2014 by focusing on the most profitable production projects. The higher asset sales target includes the disposal of half of its U.S. refining capacity in the Carson and Texas City plants.

“Getting credibility behind an interim strategy is key for Dudley,” said Simon Hawkins, an analyst at MF Global U.K. Ltd. in London. “BP is making progress. It’s very sensible to focus on profitability and cash flows.”

BP rose 4.4 percent to 457.2 pence as of the close in London, the highest since the start of August.

Net income rose to $4.9 billion from $1.8 billion in the third quarter of 2010.

Asset Sales

BP has shed more than $25 billion in assets to bolster its balance sheet after the accident. Its previous target was between $25 billion and $30 billion. The company has taken a charge of more than $40 billion for the disaster, a sum that may be reduced if other partners in the runaway well contribute to the costs. This month, BP settled with Anadarko Petroleum Corp. for $4 billion.

“We’ll have a smaller footprint, but one that plays to our strengths,” Dudley said in a Bloomberg Television interview. “Between now and 2016 we should add 1 million barrels a day of new production and the margins will be double our current ones.”

Dudley plans to double the company’s exploration budget over the next few years. Last week, BP won regulatory approval for its first drilling plans in the Gulf, home of its most profitable fields, since the spill.

Gulf Rigs

BP has plans to get all five of its Gulf of Mexico rigs working by the end of the year. Three vessels have already received permission to carry out plug and abandonment work, the company said today. Dudley said the company may get up to eight rigs working in the Gulf next year, more than the company has ever had in the region.

BP has yet to gain approval from the U.S. Bureau of Ocean Energy Management to drill new wells, and will still need permission for each individual one in the plans for the Kaskida field approved Oct. 21. Gulf of Mexico production is likely to stagnate at about 250,000 barrels a day through next year, Dudley said.

Brent crude prices averaged $112.09 a barrel in the third quarter, 46 percent more than the $76.96 average a year earlier. Refining margins have also improved, with the global refining marker margin at $12.51 a barrel compared with $10 a year earlier.

Dudley said oil and gas production will rise in the fourth- quarter and reach more than 3.4 million barrels a day by the end of the year.

Low Point Passed

“October 2011 will be our turnaround month,” he said. “The low point in production has now been passed.”

BG Group Plc, the U.K.’s third-largest oil company, said today earnings rose in the third quarter as energy prices increased. Net income climbed to $1.06 billion in the period from $849 million a year earlier, the Reading, England-based company said today in a statement.

BP is the first of the world’s biggest oil producers to post results. Exxon Mobil Corp. (XOM) and Royal Dutch Shell Plc will report earnings on Oct. 27.

Brian Gilvary will join the BP board as chief financial officer, replacing Byron Grote at the start of next year. Gilvary is currently deputy CFO. Grote will continue to serve on the BP board as executive vice president for corporate business activities.

BP will review dividend policy in February next year, Dudley said.

“Our intent is to generate cash for distribution to shareholders,” Dudley said. “That could be through dividends or buybacks.”

To contact the reporter on this story: Brian Swint in London at bswint@bloomberg.net

To contact the editor responsible for this story: Will Kennedy at wkennedy3@bloomberg.net

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