By Phaedra Friend Troy
Following losses in 2010, BP (NYSE:BP) reported Tuesday that underlying replacement cost profit for the second quarter of 2011 reached $5.6 billion, spurred by higher oil and gas prices and refining margins.
“BP is making rapid progress against our priorities,” said Bob Dudley, BP chief executive. “In February we said we expected 2011 to be a year of consolidation as we reset the focus of the company. This is going well, while it is having the expected near-term impact on our volumes and costs.”
Earlier this year, the company set out new priorities rebuilding value through improved safety and risk management, as well as regaining trust.
In both upstream and downstream, BP expects future cash flows to grow faster than output.
“We expect the momentum of our recovery to build into 2012 and 2013 as new projects come on stream, particularly in higher-margin areas; as we complete current turnaround activity; as we return to work in the Gulf of Mexico; and as uncertainties reduce. At the same time we will increasingly focus both our portfolio and our investments on long-term value growth,” said Dudley.
BP has nine new projects scheduled to come on-stream over the next two years, including projects in the North Sea, West Africa and Gulf of Mexico. Additionally, the company plans to continue repositioning its downstream assets, investing in businesses with long-term growth, and divesting others.
Nonetheless, production did fall 11 percent from this time last year to 3.43 million barrels of oil equivalent a day for the second quarter of 2011. BP points to the impacts of the drilling delays in the US Gulf of Mexico, as well as the company’s ongoing divestment program as the reasons for the drop.
Following the Macondo accident, BP has divested some $25 billion in assets, with a goal to divest another $5 billion before year-end. Additionally, the company plans to sell its Texas City Refinery, the southern portion of its West Coast fuels chain, and its Carson refinery by the end of 2012.
On the other hand, “2011 has been an unusually good year for BP in gaining access to new opportunities in the upstream,” said Dudley.
BP has gained acreage in Australia, Indonesia, Azerbaijan, the South China Sea, and Trinidad. Furthermore, the company is working to complete the acquisition of Devon Energy’s Brazilian assets, as well as an agreement with Reliance Industries Limited for an interest in 20 upstream blocks in India.
In the downstream segment, BP is investing in the Whiting Refinery modernization project, which is scheduled to come on-line during 2013.
In the US, BP has shifted gears from response to recovery, following the Deepwater Horizon accident and Macondo oil spill. By the end of the second quarter, BP will have paid $6.8 billion in claims and government payments to fund the economic and environmental restoration. Additionally, BP has now paid $8.6 billion to the trust fund.
"BP is a company that is changing rapidly,” Dudley said. “Having stabilized the company while living up to our commitments in the US, we will now increase our focus on performance and long-term value creation. We are committed to seeing the true value of the business more strongly reflected in our share price.”
BP profits surge to $5.6B, sees higher gains ahead
By Phaedra Friend Troy