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BP: Q1 results
As expected BP reported low growth in the first quarter of 2006, due to lower volumes as a consequence of residual hurricane impacts, primarily at Mars in the Gulf of Mexico.
Production for the quarter at 4,035m boed, slightly higher than the fourth quarter of 2005, reflecting the progressive return of production affected by storms. Compared to the first quarter of 2005, production down from the 4,090m boe but the company claimed that it was “at a similar level after taking account of the effect of severe weather disruptions�.
Overall, BP's first quarter replacement cost profit was $5,265m, compared with $5,491m a year ago, a decrease of 4%. The lower levels of output were compensated, in part, by better prices. (Replacement cost profits are calculated at current oil prices - rather than at actual historic costs ie at the costs it would take to replace the oil pumped out)
Exploration & production, the company’s largest business (which makes up almost 85% of the company’s profits) reported a 5% increase in replacement cost profits (before interest and tax) to $6,823m due to better prices.
Refining & marketing reported a replacement cost profit before interest and tax for the first quarter was $1,612m compared with $1,411m in the same period the previous year mainly due to non-operating gains of $564m on divestment of some assets.
BP disposed of its holdings in Zhenhai Refining and Chemicals Company to Sinopec and sold its Czech Republic retail network to Osterreichische Mineralol Verwaltung Aktiengesellschaft (OMV).The company also sold its shareholding in Eiffage, the French based construction company, and completed a restructuring of our Olympic Pipeline ownership. These disposals form part of a broader rationalization of its European marketing business that is in progress.
The company is bullish in its outlook citing robust expectations for the world economy. While we are less sanguine on prospects for Europe and North America, growth in Asia and Latin America seems likely to be healthy. Strong demand from Asia, particularly China has been the primary driver of oil and commodity prices in the recent past and this looks set to continue.
The company expects production for 2006 to rise to between 4,100-4,200 mboe which means short-term growth will be largely dependent on price, increases in output being rather small. The smaller oil companies (Tullow, Premier Oil, Dana Petroleum) offer far greater growth potential than the majors – but, for various reasons, at higher levels of risk.
In anycase, BPhas been something of an underperformer, despite good growth in profits - somethingwenoted in our previous piece.
The share trades at 704.5p, on a prospective PE (2007 earnings) of 11.3x, at the lower end of the sector range. The yield is 3.2%.