BP bullish despite 45% drop in annual profits

Oil giant BP insists it's had a 'very good' year, despite seeing profits almost halve. And it may be right.

Last Updated: 31 Aug 2010

Lower oil and gas prices may be good news for us when we pay our utility bills and fill up our cars, but it’s not so good for the likes of BP. The oil giant saw like-for-like profits plummet 45% in 2009, which it blamed on lower gas prices and a squeeze on refining margins. And although things seemed to perk up in the fourth quarter, with profits up by a third, it still wasn’t enough to please the stock market – its share price plummeted nearly 5% this morning, which is rather a lot when you’re a £100bn company. Nonetheless, relatively speaking, BP still looks in pretty good shape…

Today’s results were a bit of a mixed bag for BP. It hasn’t been an easy year for the company by any means, what with CEO Tony Hayward’s ongoing cost-cutting drive – headcount was slashed by 3,000 in 2008 and a further 5,000 in 2009, which is painful by any standards. And the market was disappointed with those Q4 profits – a 33% rise to 33% to $3.45bn (£2.17bn) was less than analysts expected, depressing the share price. Although crude oil was more expensive than in the same period in 2008 last quarter, falling prices in the early part of the year, coupled with markedly lower profit margins at its refineries, were enough to bring down BP’s annual profit figure to £14bn, from £26bn the previous year.

But there was some good news too. Oil and gas production was actually up 4%, helped in no small part by the absence of those pesky hurricanes and its refineries running at full capacity. The increase, well ahead of the usual 1 or 2%, was also helped by the start of some big new drilling projects, including the Thunder Horse field in the US Gulf of Mexico (although BP is unlikely to repeat the trick in 2010). And there’s been a welcome absence of bad news on the safety front – another feather in Hayward’s cap.

BP is partly a victim of its own success; not many companies would see their share price plummet after a 33% profit hike. But Hayward was upbeat today: he described 2009 as a ‘very good’ year for BP, saying it had smashed his expectations for the year, despite the difficult trading conditions. In fact, he thinks it was one of the oil giant’s best years in the last decade, despite that big fall in headline profits. It’s always going to be susceptible to energy price swings, but all these efficiency and production improvements should stand it in good stead in 2010. And let’s face it – it’s hard to be too despondent after racking up annual profits of £14bn.

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