This summary is based on the second quarter fiscal 2007 earnings call conducted by BP Plc (BP) on July 24, 2007.
Chief Executive Officer: Tony Hayward
Chief Financial Officer: Byron Grote
Chief Executive, Exploration and Production: Andy Inglis
Chief Executive, Refining and Marketing Business: Iain Conn
Key Investor Issues
- Net profit was $7.38 billion or 31.67 cents per ordinary share.
- Dividend of 10.825 cents per share has been approved for the quarter.
- Net debt at end of the quarter was $21.1 billion.
- Net cash from operating activities was $6.1 billion for the quarter.
Second Quarter Highlights
The realization per barrel in the quarter increased to $63 from the first quarter level.
- The prices were at around $4.50 per thousand cubic feet, similar to a year ago, but 8% lower than the first quarter. For both oil and gas, the realizations for the quarter were 10% lower than the first quarter.
- The refining margins in the US improved in the quarter at almost $17 per barrel, a 32% rise from the same period a year earlier. However, The company didn’t realize similar extents due to low refining availability in its US operations and the product mix.
The company’s replacement cost profit was $6.1 billion comparable to a year earlier in absolute terms.
– The company’s profit, including inventory gains and losses was $7.4 billion, slightly lower than same quarter previous year. This reflected a benefit of 5% in the company’s outstanding shares compared to a year ago. This includes $750 gains from non-operating gains.
- Operating cash flow reduced to $6.1 billion in the quarter compared to a year ago, primarily as a result of working capital movements.
- A 10.825 cents per share dividend will be paid in September 2007, which is 10% higher than year ago.
The E&P segment attained a pre-tax profit of $6.9 billion in the quarter, including approximately $400 million of non-operating gains from disposals and embedded derivatives related to certain heritage long term North Sea gas contracts.
- Pre-tax profit excluding non-operating items, was $6.5 billion down from $7.3 billion a year earlier. This was caused by continued sector-wide inflation, greater integrity spend and higher DD&A charges related to change to SEC reserves reporting guidelines and increased decommissioning provisions.
- The production decreased by 5% in the quarter to 3.8 million barrels of oil per day, from same period a year earlier. However, excluding the effect of disposals and reduced entitlements in the production sharing agreements, the drop was 1%. The full year production is expected to be 3.8 million to 3.9 million barrels a day.
A 48% increase was reported in Refining and Marketing segment at $2.7 billion. This included a $770 gain from non-operating items from Coryton disposal gains.
- The effective result before the non-operating items was $2 billion, compared to $2.3 billion a year earlier.
– The operational slow down and to repairs at Whiting and other refineries have greatly offset the benefit expected from the stronger margin environment and recommissioning of the Texas City in the quarter. There has been low production of low-sulphur gasoline. Operations are expected be back to normal in the first half of 2008.
- The quarter’s results also reflect he company’s greater integrity spend, and lower supply optimization and favorable fair account value benefits.
Gas, Power and Renewables segment reported a pre-tax profit of $190 million compared with $450 million a year ago.
- The profit included a small charge for non-operating items related to embedded derivatives.
- Excluding non-operating items, the profit was $226 million due to a lower marketing and trading contribution, growing expenditure in alternative energy, and a favorable fair value accounting effect, compared to the year earlier period.
-The
Other Businesses and Corporate segment reported an underlying charge of about $200 million which was comparable to a year earlier.
Working capital movements due to increasing oil prices resulted in decreased operating cash flow of $14.1 billion and a further $3.7 billion from disposals.
- The cash flow was used to fund $8 billion in organic capital spending, $1.2 billion of acquisitions, plus $8.5 billion of shareholder distributions.
- The company’s net debt ratio remained flat in the quarter and below the targeted 20% to 30% range. The management expects this to improve in the remaining part of the year.
– The shareholder distributions for the first half of the year were $8.5 billion with $4 billion as dividend payments and $4.5 billion used to repurchase shares. The repurchase program has slowed down in 2007 due to reduced free cash flow as an effect of reduced revenue. The past years, 2005 and 2006 benefited from high disposal proceeds and sale of Innovene. The management targets 100% improvement on free cash flow levels.
Fiscal Year 2007 Outlook
-The company has signed a Memorandum of Understanding to enter into a strategic alliance with Gazprom in the TNK-BP joint venture on the Kovykta gas field in Russia. This is expected to yield reciprocity with the Russian economy also getting an opportunity to invest abroad. This is foreseeable as the future trend in the industries.
- The company has also sanctioned a series of major projects in its Exploration and Production segment, including the expansion of its San Juan coal bed methane operations in the US, Skarv in Norway and the expansion of its gas handling terminal in the southern North Sea.
- The company has signed deals in Oman and Libya where it can now access gas resources of 20 to 30 TCF. It also has had exploration successes in Angola, Egypt and the Gulf of Mexico.
