BP Global - Press - BP Second Quarter 2006 Results

Download the full version of the results using the link below.

Listen to an archive of our second quarter results webcast, hosted by Lord Browne, Group Chief Executive and Byron Grote, Chief Financial Officer, which discussed BP’s second quarter 2006 results.

Second Quarter 2005	First Quarter 2006	Second Quarter 2006
				First Half
			$ million	2006	2005	%





5,591	5,623	7,266	Profit for the period*	12,889	12,193
(610)	(358)	(1,148)	Inventory holding (gains) losses	(1,506)	(1,721)



4,981	5,265	6,118	Replacement cost profit	11,383	10,427	9





12.67	14.66	16.59	- per ordinary share (pence)	31.25	26.22
23.42	25.66	30.28	- per ordinary share (cents)	55.94	49.03	14
1.40	1.54	1.82	- per ADS (dollars)	3.36	2.94






BP's second quarter replacement cost profit was $6,118 million, compared with $4,981 million a year ago, an increase of 23%. For the half year, replacement cost profit was $11,383 million compared with $10,472 million, up 9%. The second quarter result included a net non-operating gain of $6 million compared with a net non-operating charge of $822 million in the second quarter of 2005. For the half year, the net non-operating charge was $11 million compared with a net non-operating charge of $280 million for the first half of 2005. The second quarter trading environment was generally stronger than a year ago with higher oil and gas realizations and higher refining margins but with lower overall marketing margins. Net cash provided by operating activities for the quarter and half year was $9.1 billion and $18.1 billion compared with $6.7 billion and $16.1 billion a year ago. The ratio of net debt to net debt plus equity was 15%. The quarterly dividend, to be paid in September, is 9.825 cents per share ($0.5895 per ADS) compared with 8.925 cents per share a year ago. For the half year, the dividend showed an increase of 10%. In sterling terms, the quarterly dividend is 5.324 pence per share, compared with 5.119 pence per share a year ago; for the half year the increase was 11%. During the first half, the company repurchased 725 million of its own shares at a cost of $8.5 billion.

BP Group Chief Executive, Lord Browne, said:

“BP’s second quarter result reflected good overall operating performance and continuing strong upstream and refining margins. The Texas City refinery is now running at 200 mb/d and further units will be brought onstream across the balance of 2006. Our actions to control costs are on track. Results are being impacted by higher tax charges. Strong cash generation continues to support shareholder distributions through dividends and buybacks”.

^*Profit attributable to BP shareholders.

Summary Quarterly Results

Exploration and Production’s second quarter result benefited from higher liquid realizations and marginally higher gas realizations. In addition, it included higher costs, reflecting the impact of sector-specific inflation, increased integrity spend, repairs and revenue investment.

The Refining and Marketing result showed an improvement over the same period last year despite the effects of reduced throughputs at the Texas City refinery. The second quarter’s result reflects strong operating performance, higher refining margins, supply optimization benefits and a lower net charge for non-operating items, partially offset by lower overall marketing margins.

In Gas, Power and Renewables, the higher second quarter result benefited from a higher net gain from non-operating items, increased contributions from the gas trading and marketing business and better operational performance in the natural gas liquids business. This was partly offset by a negative impact from IFRS fair value accounting charges.

Finance costs and Other finance expense was $107 million for the quarter compared with $163 million in the second quarter of 2005. Increases in market interest rates were more than offset by increased capitalized interest and a higher expected return on pension and other post-retirement benefit plan assets.

The consolidation adjustment, which removes the margin on sales between segments in respect of inventory at the period end, was a charge of $277 million in the second quarter.

The effective tax rate on replacement cost profit of continuing operations was 36% versus 32% a year earlier, reflecting the higher level of provision write-backs in 2005.

Capital expenditure was $3.7 billion for the quarter; there were no significant acquisitions. Disposal proceeds were $2 billion.

Net debt at the end of the quarter was $14.4 billion. The ratio of net debt to net debt plus equity was 15%.

During the second quarter, the company repurchased 376 million of its own shares, at a cost of $4.5 billion. These shares are held in treasury.

In July, BP purchased 9.6% of the shares released under Rosneft’s IPO for a consideration of $1 billion.

The commentaries above and following are based on replacement cost profit.

The financial information for 2005 has been restated to reflect the following, all with effect from 1 January 2006: (a) the transfer of three equity-accounted entities from Other businesses and corporate to Refining and Marketing following the sale of Innovene; (b) the transfer of certain mid-stream assets and activities from Refining and Marketing and Exploration and Production to Gas, Power and Renewables; (c) the transfer of Hydrogen for Transport activities from Gas, Power and Renewables to Refining and Marketing; and (d) the change in the basis of accounting for over-the-counter forward sale and purchase contracts for oil, natural gas, NGLs and power. See page 25 of the results for further details.

Outlook

BP Group Chief Executive, Lord Browne, concluded:

"World economic growth has been sustained. US economic growth appears to have slowed compared to the first quarter, but Europe appears to have grown faster; growth in other regions has been sustained. The near-term global outlook appears resilient.

"Crude oil prices averaged $69.59 per barrel (Dated Brent) in the second quarter of 2006, an increase of nearly $8 per barrel from the first quarter and $18 per barrel above the same period last year. Prices rose in face of heightened geopolitical concerns. Demand is growing strongly in China and the Middle East, offsetting weakness in the US and Europe. Ample inventories and increased spare OPEC production capacity have failed to stem the increase. Oil prices are expected to remain strong.

"US natural gas prices averaged $6.80/mmbtu (Henry Hub First of Month Index) in the second quarter, $2.21/mmbtu below the first quarter. Gas prices traded below parity with residual fuel oil during the quarter. Onshore gas supplies and net imports have grown; recovery of hurricane-affected production has continued. Working gas inventories at the end of June were 29% above the five-year average. US gas prices have fallen further so far in the third quarter.

"UK gas prices (NBP day-ahead) fell in the second quarter to average 34.6 pence per therm, compared to 70 pence per therm in the first quarter, but 15% higher than in the second quarter of 2005. However, European long-term contract prices, which are indexed to oil prices, increased by more over the same period. As a result, UK spot prices traded at a discount to European contract prices in the second quarter 2006, compared to a small premium during the second quarter of 2005. The Rough storage facility has re-opened and inventories are expected to reach normal levels by October, but concerns over winter supply have led the NBP futures to exceed 80 pence per therm.

"Global average refining margins rose sharply to $12.59/bbl in the second quarter of 2006 compared with $6.28/bbl in the first quarter. A heavy US refinery maintenance programme extended into the second quarter and coincided with the switch from MTBE to ethanol for reformulated gasolines. Margins increased strongly to encourage sufficient product imports from abroad. So far in July, margins have remained near the second quarter average as the US driving season approaches its peak and as the transition to ULSD gathers pace. Both of these developments are likely to support the refining environment over the near term.

"Although retail margins deteriorated in April they recovered in May and June on the back of movements in the cost of product. This has resulted in overall second quarter retail margins being slightly ahead of the first quarter. So far in July, a further rise in wholesale gasoline and crude prices is evident; marketing margins are therefore expected to remain volatile.

"The UK Government’s announced increase in the North Sea supplemental tax rate has been enacted. This increase will have two effects; first to create a one-time deferred tax charge and second to increase current tax to reflect the 2006 impact of the proposed higher rate, which is retroactive to the start of the year. The full year aggregate effective tax rate is expected to be around 39%.

"We have 16 major projects currently under development scheduled to start up in the 2007-9 period, and a further 11 under appraisal. Beyond 2009 we now see a further 26 major projects which would be expected to develop around 8 billion boe. These projects support our expectation that we will move 11 billion boe from non-proven resources to proved reserves between now and 2010, underpinning our continued renewal beyond this decade.

"We continue to expect full year 2006 production to be consistent with the guidance of 4.1 to 4.2 mboe/d given in February, after adjusting for divestments and the impact of higher prices on entitlements under production sharing contracts. On the basis of divestments announced in 2006 to date, and assuming that oil prices remain at around $70/barrel, these adjustments are expected to amount to around 65,000 boe/d and 45,000 boe/d respectively this year.

"Our strategy is unchanged. We continue to execute it with discipline and focus. Capital expenditure excluding acquisitions is expected to be between $15.5 billion and $16 billion for the year, greater than previously estimated as a result of higher sector-specific inflation, driven by high oil prices. Divestment proceeds are also expected to be significantly higher than previously estimated at more than $6 billion."

Cautionary Statement: The foregoing discussion, in particular the statements under "Outlook", contains forward looking statements particularly those regarding the receipt of approvals for and start-up of production from Thunder Horse; the timing of the completion of the sales of the remaining Gulf of Mexico assets; recommissioning of the Texas City refinery and the timing of the realization of its full financial potential; planned investments in biofuels research, development and marketing; world economic growth; oil and gas prices; UK gas inventories; refining margins; marketing margins; the effect of the increase in the North Sea supplemental tax rate; the aggregate effective tax rate; the timing and effect of major projects; production; divestments and resulting adjustments to production; capital expenditure; and divestment proceeds. By their nature, forward looking statements involve risks and uncertainties and actual results may differ from those expressed in such statements depending on a variety of factors including the following: the timing of bringing new fields on stream; industry product supply; demand and pricing; currency exchange rates; operational problems; general economic conditions including inflationary pressures; political stability; economic growth in relevant areas of the world; changes in governmental regulations; exchange rate fluctuations; development and use of new technology; the actions of competitors; natural disasters and other changes in business conditions; prolonged adverse weather conditions; wars and acts of terrorism or sabotage; and other factors discussed in this Announcement. For more information you should refer to our Annual Report and Accounts 2005 and our 2005 Annual Report on Form 20-F filed with the US Securities and Exchange Commission.

Cautionary Note to US Investors: The United States Securities and Exchange Commission permits oil and gas companies, in their filings with the SEC, to disclose only proved reserves that a company has demonstrated by actual production or formation tests to be economically and legally producible under existing economic and operating conditions. We use certain terms in this announcement, such as “resources”, that the SEC’s guidelines strictly prohibit us from including in our filings with the SEC. U.S. investors are urged to consider closely the disclosure in our Form 20-F, SEC File No. 1-6262, available from us at 1 St James’s Square, London SW1Y 4PD, United Kingdom. You can also obtain this form from the SEC by calling 1-800-SEC-0330.

BP Second Quarter 2006 Results

Summary Quarterly Results

Outlook

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