LONDON (Reuters) – BP Plc (BP.L) expects its oil and gas production to have fallen 2.5 percent in the second quarter — more than some analysts had expected — raising the challenge the oil giant faces in meeting growth plans.
London-based BP said in a statement on Monday that output was likely to fall to around 4.01 million barrels of oil equivalent per day (boepd).
However, analysts said they expect strong oil prices and refining margins during the quarter to ensure earnings beat the same period of 2005.
“The group would appear to have had a very good quarter, and we shall be increasing our forecasts from the current expectation of replacement cost net income of $5.5 billion by circa 10 percent,” Kepler Teather & Greenwood Merrion said in a research note.
BP shares traded up 1.19 percent at 638 pence at 1135 GMT, against a 0.79 percent rise in the DJ Stoxx European oil and gas sector index (^SXEP – news).
The production figure is just short of analysts’ forecasts of between 4.02-4.09 million boepd and compares with 4.112 million boepd in the second quarter of 2005.
Production rose 12 percent at BP’s Russian joint venture TNK-BP (TNBPI.RTS) but fell 4 percent across the rest of the portfolio, where profits are higher due to lower taxes.
The drop will make it harder for BP to meet its goal of raising production to between 4.1 and 4.2 million boepd in 2006 and reflects an industry-wide difficulty of bringing new fields on line fast enough to compensate for declines in mature fields.
BP lost 20,000 barrels per day of production after the Venezuelan government demanded companies convert their contracts into joint ventures with the national oil company PDVSA.
The aftermath of last year’s hurricane damage to Gulf of Mexico facilities also weighed on the world’s second largest fully publicly traded oil company by market capitalization.
Investors took solace in BP’s earlier guidance that its 2006 growth would be weighted toward the second half of the year.
However, the delayed start of its Thunder Horse platform in the Gulf of Mexico could hit these plans.
The platform — one of the largest of its kind — was supposed to start pumping last year. This was delayed to the second half of 2006 but analysts said it may now not start until 2007.
As expected, BP flagged strong refining earnings in the second quarter, saying that its global index of refining profitability indicated margins of $12.61 per barrel processed compared with $8.42 in the second quarter of 2005.
Analysts said they expect all the oil companies to report strong refining profits as margins are at or near record levels.
BP is taking advantage of a resurgence in the sector to reduce its refining activities. It plans to sell its Coryton refinery in Britain after the sale of two refineries last year.
Second-quarter profits will be underpinned by average Brent prices of $69.53 per barrel and U.S. WTI prices of $70.40, BP said.
BP said its gas and power unit’s margins would be higher than in the first quarter. Citigroup said in a research note the unit’s result was now likely to exceed the bank’s forecast.
BP is currently struggling to defend its reputation as one of the best-managed oil companies after a fatal refinery explosion in Texas which was blamed on safety failures, pipeline leaks in Alaska and an official investigation into alleged manipulation of the U.S. propane market.
BP said it would take an additional $500 million charge related to litigation linked to the Texas City explosion which killed 15 people, bringing the total compensation bill to $1.2 billion.
The explosion had also caused $1 billion in lost profit, Citigroup said.