AP
BP Reports 53 Percent Rise in 4Q Profit
Tuesday February 5, 1:54 pm ET
By Jane Wardell, AP Business Writer
BP PLC Reports 53 Percent Rise in 4th-Quarter Profit


LONDON (AP) -- Oil company BP PLC on Tuesday unveiled plans to speed up cost-cutting and restructuring, including shedding 5,000 jobs, as it seeks to improve competitiveness with industry peers after reporting disappointing annual net profits.

BP aims to shake off the remnants of a turbulent year in which it lost its chief executive and was fined millions of pounds for environmental crimes and fraud.

"We are absolutely determined to transform our downstream business as a whole," said BP Chief Executive Tony Hayward. "It will not happen overnight, but we believe that the performance gap with our competitors can be progressively narrowed in the next few years."

The London-based company reported a 53 percent rise in fourth quarter net profit to $4.4 billion, as soaring oil prices underpinned an 29 percent rise in revenue to $81.5 billion.

However, over the full year net profit fell 5.5 percent to $20.8 billion, despite a 6.2 percent rise in revenue to $291.4 billion.

In contrast, Royal Dutch Shell PLC, Europe's largest oil company, last week reported a 23 percent rise in full-year earnings to a record $31.3 billion while Exxon Mobil posted the largest ever annual profit by a U.S. company with net earnings of $40.6 billion.

BP is now speeding up its turnaround strategy, announcing Tuesday that it will reduce its corporate overheads by 15 percent to 20 percent and will spend $1 billion on restructuring this financial year alongside the job cuts that represent 5 percent of its global staff.

The new plans extend the strategy announced by Chief Executive Tony Hayward in October as the company tries to improve efficiency after a string of mishaps, including an explosion at its Texas refinery that claimed 15 lives in 2005 and a partial shutdown at an Alaska field in 2006.

BP has already said it will cut 350 jobs in its British North Sea operation and the new cuts are besides the 9,500 jobs it plans to move off the payroll by franchising its U.S. convenience retail business.

Hayward said the resulting restructuring costs were some $350 million in the fourth quarter of last year and that they are expected to total a further $1 billion in 2008, with benefits feeding through in 2009.

Keith Bowman, an equity analyst at Hargreaves Lansdown Stockbrokers, said that market opinion on BP was "cautiously positive."

"Despite falling profits ... signs of improving prospects for 2008 are tangible," Bowman said. "Production levels have finally begun to improve, cost savings from the group's recently announced restructuring plan should begin coming through and a marked increase in the dividend helps provide underlying support to the share price."

Shares in the company closed little changed, just 0.2 percent higher at 543 pence ($10.65), with investors somewhat cheered by the restructuring news and a 25 percent dividend hike.

BP's closely watched replacement cost profit fell 22 percent over the full year to $17.3 billion.

The replacement cost figure is viewed by many analysts as the best measure of an oil company's underlying performance because it excludes changes in the value of crude inventories, measuring the amount it would cost to replace assets at current prices.

The company's fourth quarter result included a net non-operating charge of $1.03 billion driven by embedded derivatives related to North Sea gas contracts, restructuring costs and the exit from convenience stores in the United States. The charge compared with a net non-operating charge of just $152 million in the fourth quarter of 2006.

Earnings were also hurt by repairs and outages at American refineries and a 14 percent drop in global refining margins in the quarter, which BP said contributed to an underlying loss of $800 million in its U.S. refining and marketing unit.

The company dealt with a barrage of negative publicity over the year.

Chief Executive John Browne resigned in May after lying to a court in a bid to block stories about his private life and the company brokered a $50 million fine with the Justice Department for the 2005 Texas City refinery explosion in which 15 people died.

That agreement could be overturned, however, with a federal judge on Monday giving victims and their families unhappy with the amount of the fine another chance to argue why the company's plea deal should be rejected.

The deal was part of a larger $373 million fine by the U.S. Department of Justice for committing environmental crimes and fraud. On top of the fines and restitution, four former BP employees were indicted by a federal grand jury in Chicago on 20 counts of mail and wire fraud connected to a scheme to manipulate energy markets.