BP Reaches “A Definite Turning Point” – Profit More Than Doubles

By Alexis Flynn, Wall Street Journal

LONDON—BP PLC shares rose in early trading Tuesday after the U.K. energy giant reported solid earnings and announced plans to expand its asset-sale program and boost distributions to shareholders.

The London-based energy company said net profit for the three months to Sept. 30 was $4.91 billion, compared with $1.79 billion a year earlier. The sharp increase was owing to the $7.66 billion pre-tax charge that BP booked for the Gulf spill in the third quarter of 2010. Revenue rose to $97.59 billion, from $74.65 billion.

BP said the company has turned the corner, and that the progress it has made in 2011 had succeeded in “creating a stronger and safer BP.” Still, some analysts said they wanted more evidence of progress given recent disappointments.

BP, which is still dealing with the fallout of last year’s major oil spill in the Gulf of Mexico, has been under pressure from shareholders to deliver a clear strategic direction and help it catch up with its sector peers. Since the incident last year, BP’s stock has lost more than a third of its value.

The earnings comes on the heels of some positive news flow out of the U.S., where BP recently reached a key settlement with a drilling partner on the ill-fated Deepwater Horizon project and where it has made regulatory progress in resuming drilling in the Gulf of Mexico.

“We have now reached a definite turning point,” BP Chief Executive Bob Dudley said.

BP shares were up nearly 4% in early trade at 454 pence.

The company also said Chief Financial Officer Byron Grote would step down from his position in January, to be replaced by his deputy Brian Gilvary. Grote, who will assume another executive vice president role and retain a seat on the board, has been BP CFO for nine years.

With analysts and investors prepared for the production fall—which was in line with expectations—attention turned to how the company plans to accelerate its recovery and improve shareholder returns.

BP said it plans to increase the size and scope of an asset-sale program to help cover the cost of the oil spill from $30 billion of divestments to $45 billion. BP said the additional money raised from the sales would be invested “in quality, higher-growth opportunities, mainly in exploration and production, while divesting low-returning assets.” Some of the increase to the new $45 billion figure comes from the inclusion of previously announced U.S. refinery sales.

The company said its clean-replacement-cost profit, a keenly watched figure that strips out gains or losses from inventories and other non-operating items, fell 3.6% for the period to $5.33 billion, compared with $5.53 billion a year earlier and above expectations of $5.06 billion.

Total production for the period was 3.3 million barrels of oil equivalent a day, a 12% decline from a year earlier.

Operating cash flow improved markedly to $6.89 billion, from a loss of $652 million last year. BP now expects cash flow to grow by around 50% by 2014, assuming a $100 a barrel oil price in 2014. The company said it would evaluate its plans for 2012 shareholder distributions in February “adjusting them in line with the improving circumstances of the firm.”

Analyst Peter Hutton from Royal Bank of Canada said while the numbers were encouraging, talk of a turnaround was “perhaps premature” until new drilling permits in the Gulf of Mexico are received.

Mr. Hutton said that BP has sometimes made hasty announcements—such as its mooted tie-up with OAO Rosneft in January that subsequently collapsed following objections from its Russian joint venture partners—so “the market may want to see proof” that things are really improving.

Dow Jones & Company, Inc.