Oil giant BP misses forecasts
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LONDON, England (Reuters) -- BP, the world's second-largest oil company, fell short of market forecasts with a flat fourth-quarter profit on Tuesday but said it would immediately resume share buybacks to support its stock.
Analysts attributed the disappointing quarter to weakness in upstream operations, the core oil and gas exploration and production which generates the bulk of profits.
A BP spokesman said weakness was partly due to an unusual oil price lag effect that prevented the firm from booking Alaska upstream profits late in the quarter.
"It looks as if profitability in exploration and production has been very low," said Tony Alves analyst at Investec. "Other areas are disappointing too, but they've undershot by several hundred million (dollars) on the upstream."
The poor performance underlines investor disaffection in the oil and gas sector after BP's main European rival, Royal Dutch Shell, shocked shareholders last month by slashing its estimated reserves.
The disappointing profit figure was tempered by the buyback programme. "We will be starting the buyback today," Chief Executive John Browne told reporters.
However, BP shares still fell 3.5 percent to 412 pence in late morning trade.
"This is not a set of figures that is likely to reinvigorate interest in the sector," said Finlay Macdonald of Britannic Asset Management, though he said the buyback announcement was positive and "a point of differentiation between BP and Shell," which has signalled it is unlikely to buy back stock this year.
BP also announced its second Chinese equity divestment of the year, with the sale of its 2.1 percent holding in Sinopec, cashing in on the China oil stocks boom.
BP's net profit, adjusted to exclude exceptional items and goodwill and for the replacement cost of supplies, was $2.667 billion, below a Reuters poll of analysts' expectations ranging from $2.9 billion to $3.2 billion and averaging $3.03 billion.
Forecasts had already been reined in from about $3.5 billion after a January trading statement.
BP said that in its core exploration and production business, higher oil and gas prices and the contribution from its new Russia venture, TNK-BP, were offset by higher depreciation, currency movements, one-off charges and the Alaska profit lag effect.
Click here for a full story on special charges to upstream profits.
Despite falling short of expectations, BP's 2003 result was still a record for the company at $12.379 billion, up 42 percent from a year earlier, largely thanks to strong oil prices.
BP hiked its fourth-quarter dividend to 6.75 cents a share from 6.5 cents in the third quarter and 6.25 cents a year earlier, in line with most analysts' expectations and bringing the increase for the year to 8.3 percent.
However, for shareholders who are paid out in sterling, the annual dividend was down 0.8 percent due the weakness of the dollar.
Dollar weakness and its effect on dividends has left BP and Royal/Dutch Shell trailing way behind world number one Exxon Mobil in terms of share price performance in recent months. Exxon delivered a better-than-expected fourth quarter.
Despite bumper profits, the energy sector has been a market laggard due to concerns about rising costs and investors' preference for recovery stocks.
Shell, which reported its fourth-quarter profits last week, is the worst performer this year in the UK's FTSE 100 index and its shares have lost 16 percent. BP is the eighth-worst FTSE performer with a six percent slide.
BP is set to realise more than $740 million from the sale of its Sinopec stake, for which it paid $385 million in 2000, providing funds to help finance share buybacks this quarter.
The move follows the sale of its stake in another Chinese firm, PetroChina, in January. A spokesman said the moves did not signal any retreat from Chinese investment projects.
CEO Browne said BP would target gearing of 25-30 percent at a $20 per barrel benchmark crude oil price. The new $20 oil price assumption, up from $16 previously, gives BP more leeway in financial modelling.
He also forecasted that the total $13.5 billion of capital expenditure expected for 2004 would fall to about $12.5 billion in the coming years.
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