BP said this morning that it made a profit of $3.14bn between April and June, less than half as much as during the same period in 2008. The falling oil price was largely to blame – we might have enjoyed cheaper petrol (even if it didn’t seem to drop as far as the oil price did), but it’s not such good news if you’re an oil major. Then again, this huge drop wasn’t as bad as analysts expected – and there were more signs that CEO Tony Hayward’s restructuring efforts are bearing fruit…
To be fair, Hayward has a better excuse than most CEOs reporting such a huge drop in profits. This time last year, the oil price was heading towards its July peak of $147 a barrel – so BP was making money hand over fist selling it on. However, by December it had slumped below the $40 mark, as demand plunged around the world in the wake of the recession. It has since recovered to about $70, but it’s not surprising that BP’s profits have been hit as a result.
The good news, at least as far as investors are concerned, is that his efforts to make BP a little leaner and meaner appear to be working. The oil giant has already hit its $£2bn cost-cutting target for this year, and it’s now planning to lop off another $1bn before the year is out. All of which will mean the loss of about 5,000 jobs, although BP insists that’s it for now. Better still, it’s managed to suck an extra 4m barrels of oil out of the ground last quarter – an impressive achievement at a time when most of its rivals have seen production fall.
This explains why today’s results haven’t gone down quite as badly as you might expect. Analysts seem to concur that Hayward has done a pretty good job since taking over from Lord Browne in May 2007 (although the cuts that he’s had to make since suggest that the organisation had become rather bloated during the reign of the so-called ‘Sun King’, despite his later attempts at cost-cutting). And the dividend remains unchanged - in fact, if you factor in currency movements, it’s actually higher than last year.
Nonetheless, times are still pretty tough for BP, which explains why Hayward sounded gloomy today: ‘We are in turbulent times, volatile and uncertain,’ he warned. Demand may have stopped falling, but the CEO reckons a return to growth is still some way off – any recovery will be ‘long and drawn out’, he said. So he’s still got plenty of work to do...
In today's bulletin:
UKFI rudderless as Kingman jumps ship
BP profits halve on lower oil prices
Editor's blog: BSM picks Fiat and gives Vauxhall the boot
Broadband adverts exaggerate shocker
'Our bank is putting our entire business at risk'