BP banks £1m an hour
Oil giant BP today reported a profits bonanza that saw it bank nearly £1m (€1.4m) an hour on the back of record fuel prices.
BP was also helped by an upswing in refining margins as its profits climbed to $3.94bn (£2.1bn/€3bn) during the three months to September 30.
Prices were unlikely to make a quick return to the era of cheap oil seen in the 1990s as BP predicted the cost of crude would stay above $30 a barrel in the medium term.
This was due to sustained growth in demand for crude this year, particularly in China, which has slashed spare capacity in the oil industry by two thirds.
Oil prices in the third quarter were also forced higher by the loss of production in the United States following Hurricane Ivan and low inventories.
A barrel of oil has sold for an average of nearly $50 this month, with Brent crude for December delivery trading at $50.63 on the markets today.
The bumper profits are likely to reignite anger among motorists who have seen petrol prices jump 10% this year, with a litre of unleaded currently costing 84.3p.
But the AA motoring organisation said BP could not be accused of “excessive profiteering” as 75% of the cost of petrol and diesel went to Treasury coffers in the form of tax.
Chief executive Lord Browne said BP had performed strongly on the back of strong global demand, but shares fell 1% today because the group failed to smash market forecasts.
Zac Philips, of brokers Teather & Greenwood, said: “Analysts always look to be surprised on the upside and these results actually haven’t done that. There will be a few disappointed people out there.”
Investors also anticipated there would be less surplus cash to repurchase its own stock next year. BP was expected to spend $7.5bn (£4.08bn/€5.9bn) on buybacks this year and a similar sum in 2005.
Fears that the buyback programme would be scaled back followed the news that BP would spend $14bn (£7.6bn/€11bn) on infrastructure next year - more than previously thought.
This was due to the weakness of the US dollar and higher prices for capital goods such as steel, which is used in pipelines and oil rigs.
The profits figure for the third quarter includes exceptional costs of $401m (£217.8m/€314.9m), reflecting environmental clean-ups and other charges.
BP said profits in the first nine months of the year were 26% higher than a year ago at $12.56bn (£6.83bn/€9.9bn).
There was a 30% improvement in profits from exploration and production as BP reaped further benefits from its tie-up with Russian oil group TNK.
Refining margins slipped back from record levels in the second quarter but remained high due to strong growth in demand and low stocks, BP said.
Lord Browne said the group was on track to hit its investment targets and buy back more of its own shares.
The world economy was likely to continue to grow at current trends, although he saw signs of a slowdown in parts of Asia, including China.
Economic recovery in the United States appeared to have gathered speed in the third quarter, but Europe was failing to keep pace.
“The outlook for the rest of 2004 will depend upon the rate of US production recovery after Hurricane Ivan and the strength of oil demand growth,” Lord Browne said.
Political stability in oil-producing nations and decision-making by oil cartel Opec also had the potential to force fuel prices higher, he added.
