BP said this morning that its replacement cost profits in the third quarter totalled $10bn, a 148% increase on last year’s figure of $4bn (and more than $3bn higher than the previous quarter). CEO Tony Hayward admitted that the soaring price of oil, which touched $147 during the period, had ‘obviously helped our absolute result’ – but insisted that these bumper profits were also proof that his turnaround strategy was working. But we’re not convinced this will save BP from the inevitable public backlash over profiteering oil companies…
Of course, this summer was a good time to be in the oil business (not that there ever seems to be a bad time), as the price crept ever-nearer the $150/barrel mark. So BP would have to have been pretty incompetent not to enjoy a profits surge. Still, this $10bn figure seems to have impressed analysts, who weren’t expecting BP to do quite this well. Its profits are now up 54% for the year to date, while it’s also producing slightly more oil than last year, despite the disruption caused by storms in the Gulf of Mexico, the war in Georgia, and the bad-tempered spat with the Russian authorities over joint venture TNK-BP (which finally seems to be resolved).
But Hayward insisted that BP’s success wasn’t all down to the oil price. ‘This should not obscure very real operational improvements in refining and rigorous cost control across the company that kept our cash costs essentially flat compared with last year - despite immense inflationary pressures in the sector,’ he said today. He also said that his restructuring programme – a euphemistic way of referring to his cull of unnecessary middle management – was continuing apace, cutting costs further. As a result, he’s upped BP’s dividend by a whopping 64%.
All good news for shareholders – and sure enough, BP was one of the top risers on the FTSE 100 this morning, up nearly 9% (having fallen in recent weeks along with the oil price, amid concerns about the recession reducing demand). But it’ll go down like a lead balloon with consumers, who are currently shelling out a fortune on home energy bills and petrol. Results like these will put pressure on the government to crack down on energy companies that aren’t passing these falls onto customers. And if Hayward’s really unlucky, it might even renew calls for a windfall tax on the oil majors.
Indeed, this must be one of the few occasions when the CEO of a FTSE 100 company may well have been a little embarrassed about revealing better-than-expected profits...
In today's bulletin:
Crunch costs us $2.8trn - so far
BP records forecast-busting £10bn profits
MT's Little Ray of Sunshine: Porsche gives hedgies a hiding
Why the Lehman restructuring could take a decade
But we are cool, insist accountants