Production problems continue to plague oil giant
Troubles at oil giant BP deepened today after output in the last three months fell even lower than a year ago when production was devastated by hurricanes.
The London-based firm said it pumped 3.8 million barrels of oil out of the ground per day between July and September after it was forced to shut operations at its large Prudhoe Bay oil field in Alaska over safety fears.
The output level was 24,000 barrels a day less than in the same third quarter period last year when rigs in the Gulf of Mexico were battered by the worst United States hurricane season on record.
It was also 218,000 barrels below the level reached in the second quarter of this year and underlined the problems faced by BP and its chief executive Lord Browne of Madingley.
The company’s value has fallen by 20% since April following the Prudhoe Bay fiasco, an investigation into a fatal blast at the Texas City refinery, delays to the opening of the key Thunder Horse platform in the Gulf of Mexico, and allegations of market manipulation in the US.
Falling oil prices have also depressed BP shares with crude hitting a seven-month low below $59 a barrel today – threatening profits at BP.
BP today also reported lower refining margins, a fall in the price it gets paid for gas, a higher tax burden and lower production at its joint venture in Russia.
Shares in BP fell 2% in early trading to their lowest level for 16 months although they later recovered to stand 1% higher.
Richard Hunter, head of UK equities at Hargreaves Lansdown stockbrokers, said: “These are torrid times for BP. The Prudhoe Bay shutdown, the delay of the return of the Thunder Horse platform, strained Russian relations and some potential US litigation have all weighed heavily on the shares.
“Today’s trading update does little to allay the general malaise surrounding the company as production has again, as expected, fallen for a number of reasons.
“The silver lining is that BP remains an oil behemoth in global terms, and its strong cashflow can be matched by few of its competitors.
“Its sheer size in many ways enables it to withstand the current problems and, given a dip in the share price over the last six months, the general market view is to be picking the shares up on this weakness.”
Despite the fall in the cost of crude in the last few weeks, the average selling price in London in the third quarter was $69.60 a barrel – one cent higher than in the second quarter and around eight dollars higher than a year ago.
A research note by analysts at Kepler Teather & Greenwood Merrion stockbrokers said the higher oil price would continue to drive profits despite the fall in production, which was worse than expected.
The note added that although BP “will struggle” to meet its full-year target of pumping 4.1 million to 4.2 million barrels of oil a day, it was still on course to produce more than 4.88 million barrels of oil a day in 2010.
It said delays to Thunder Horse and shutdowns at Prudhoe Bay “will not affect the ultimate output from these fields“.
Analyst Tanya Clarke said: “The shares have come under huge pressure over the past few months on the back of weaker oil prices and concerns over its US operations and the temporary closure of the Prudhoe Bay oil field.
“We believe the market has overreacted and that the shares are looking attractive. BP still offers some of the best growth among the integrated oil companies.”
BP’s Prudhoe Bay oil field, the largest in the US, was partially closed in August after corrosion was found in pipelines. It followed a massive oil spill in which 270,000 gallons of crude leaked into the Alaskan bay.
Meanwhile, BP last month put back the reopening of Thunder Horse from 2007 to the middle of 2008 after it was damaged by Hurricane Dennis in 2005. The platform is the largest in the Gulf and is expected to produce about 240,000 barrels of oil and 200 million cubic feet of natural gas per day.
The company is also embroiled in an investigation into a fire at its Texas City refinery which killed 15 workers last year.
A further investigation is looking into allegations of manipulation of crude oil and petrol markets and propane prices.
In June, former BP trader Dennis Abbott, of Houston, pleaded guilty to partaking in a conspiracy “to manipulate and corner the propane market” but BP has denied any wrongdoing.
The problems have placed Lord Browne under considerable pressure and the company has launched a root-and-branch review of its global operations.
It is likely to be similar in scale to the major overhaul introduced by US oil giant Exxon following its Alaskan oil tanker spill in 1989. The shake-up helped make Exxon one of the world’s safest and most financially successful energy groups.
In July, Lord Browne said he would leave BP at the end of 2008, although he denied there was a rift with chairman Peter Sutherland over the date of his retirement.
