BP’s profits fall on lower output and a decline in refinery earnings

BP, the UK’s second-largest oil producer, has said profit has fallen because of lower output and a drop in earnings at refineries.

Earnings adjusted for one- time items and inventory changes fell to $3.2bn (€2.3bn) in the first quarter from $4.2bn a year earlier, the London-based company said yesterday in a statement. The stock rose after the company raised the quarterly dividend 8.3% to 9.75c a share.

“This is a very solid start to 2014,” chief executive Bob Dudley said in the statement. “Operating cash flow was strong in the first quarter. We have seen further exploration success and upstream project startups.”

Dudley, trying to rebuild BP’s balance sheet after the 2010 Gulf of Mexico spill while increasing returns to shareholders, has sold more than $38bn in assets in the past few years and plans to divest another $10bn by the end of 2015. BP expects to distribute proceeds from disposals to investors, with a bias toward buy backs, it said.

The shares advanced 2.9% to 502.6p at the close in London trading, the biggest gain in six months. That values the company at £93bn.

Underlying production outside Russia was slightly lower than a year ago because of works in Angola, the company said yesterday.

Reported production was 8.5% less than the first quarter last year due to divestments and the expiry of a concession in Abu Dhabi. It expects production to fall in the second quarter due to seasonal maintenance in the North Sea and Gulf of Mexico.

Declining margins from processing crude into fuels also squeezed profits as refiners in Europe contend with falling demand and overcapacity. BP’s earnings from the business dropped to $1bn from $1.6bn a year earlier.

The company has sold assets worth about $3bn on its way to the $10bn target. Last week, it agreed to sell stakes in four oil fields in Alaska, while continuing to develop and produce from the giant Prudhoe Bay.

BP will halt operations at its Bulwer refinery in Australia next year and will form a separate business to manage onshore oil and gas assets in the US. It’s taken a $521m writedown on its Utica shale project in the US, it said.

Three major projects started in the first quarter — Chirag in Azerbaijan, and the Na Kika Phase 3 and Mars-B projects in the Gulf of Mexico. It will continue to increase production in the Gulf through the year.

BP acquired 20% of Russia’s OAO Rosneft last year as part of an exchange for its half of Russia’s third- largest oil company.

Rosneft, run by Russian president Vladimir Putin’s close associate Igor Sechin, became the largest publicly traded oil producer after the deal, pumping about 5% of world output. The US expanded sanctions against Russian individuals and companies following the annexation of Ukraine.

Included on the list was Sechin. BP’s commitment to Rosneft is a long-term one, Dudley said, adding that he’ll be able to participate on the Russian company’s board. The CEO declined to speculate on the worst- case scenario if Rosneft were to be sanctioned, saying BP would comply will all relevant bans.

BP said earlier it was too early to assess the impact of US sanctions on Sechin.

— Bloomberg