EARNINGS PART 1 / BP Announces Third Quarter Result 35% Down on a Year Ago;
BP Amoco Merger Plans on Track
NEW YORK, Nov. 3 /CNW/ -- The British Petroleum Company p.l.c.
today issued the following:
- Third quarter replacement cost profit, before exceptional items, was
$736 million, after adjusting for special items.
- Before adjusting for special items of $50 million the result was $686
million. In addition, there were exceptional after tax profits of $604 million
in the quarter.
- The result versus a year ago reflects the one-third fall in the oil
price. The year to date result was 28% lower on an adjusted basis.
- Third quarter oil production increased by 12% and chemicals production
by 10% against a year ago.
- Quarterly dividend 6 pence per share.
The British Petroleum Company today reported its third quarter 1998
results. BP Group Chief Executive, Sir John Browne, commented:
"This result reflects underlying performance improvements in all our
businesses within a difficult business environment. Volume growth and cost
improvements so far during 1998 have delivered $250 million towards our target
of $2 billion of net income improvement by 2002.
"As for BP Amoco, our merger plans are well advanced. Discussions with the
regulatory bodies are going well. Our shareholders have been sent the
documents seeking their approval for the merger and an EGM (Extraordinary
General Meeting) is planned for November 25.
"In parallel with these activities, a great deal of preparatory work has
been done together by BP and Amoco to ensure rapid implementation once the
deal is closed.
"We are currently on track to complete the merger by the end of the year."
Operating Results
Replacement cost profit for the third quarter, before exceptional items,
was $686 million compared with $1,126 million a year ago, reflecting a
substantial fall in oil prices and worse refining and chemicals environments.
The result included special charges of $50 million. The adverse effect of the
environment was partly offset by performance improvements in all businesses.
Exploration and Production profit was $560 million, reflecting the
significantly lower oil price. The result has benefited from the cost savings
instigated earlier in the year. Oil production was up 12% reflecting the
build-up at the newly commissioned fields including the Eastern Trough Area
Project and Schiehallion, both of which came on stream during the quarter.
Downstream, performance improvements in all regions offset the effect of
significantly lower refining margins.
The Chemicals result reflected falling product prices and lower margins,
though these were partially offset by improved volumes. The quarter's result
included a special charge in respect of several periodic and non-recurring
items, amounting to $37 million after tax.
Capital expenditure and acquisitions was $4.6 billion for the first nine
months of the year compared with $4.0 billion a year ago. This is on track for
a year's total of $6 billion, reflecting BP's growth agenda. Capital
expenditure net of divestments is expected to be $5 billion.
Net debt reduced by $0.3 billion during the quarter to $7.2 billion. The
ratio of net debt to net debt plus equity was 22%.
Interest expense increased from $135 million to $160 million and included
a $12 million special charge which related to the exercise of an option to
terminate a $200 million bond. The underlying increase reflects lower
capitalized interest due to new fields coming on stream, the effect of which
has been partly offset by a reduction in debt.
The effective tax rate on replacement cost profit, before exceptional
items, was 27% for the first nine months of the year compared with 31% a year
ago, reflecting the effects of tax relief on higher inventory holding losses.
Net cash inflow in the third quarter was $320 million compared to $103
million a year ago. The decrease in operating cash flow was more than offset
by the effect of higher disposal proceeds.
A quarterly dividend of 6 pence per share was announced. For those
shareholders electing to receive dividends in shares instead of cash, the
share dividend is based on the net cash dividend of 6 pence plus the
associated tax credit, a total of 7.5 pence per share. Based upon the price
used for allocating shares under the Share Dividend Plan, this represents 25%
more than the net cash dividend.
Operating Results
Third Second Third
Quarter Quarter Quarter HIGHLIGHTS Nine Months
1997 1998 1998 1998 1997
Replacement cost
operating profit
1,758 1,386 1,089 Dollars million 3,909 5,549
Replacement cost profit
before exceptional items
1,126 895 686 Dollars million 2,541 3,563
Profit after
exceptional items
Replacement cost
1,111 907 1,290 Dollars million 3,164 3,540
Historical cost
1,169 791 1,203 Dollars million 2,440 3,068
Earnings per ADR:
Replacement cost profit
before exceptional items
1.18 0.93 0.71 Dollars 2.64 3.76
Historical cost profit
after exceptional items
1.24 0.82 1.24 Dollars 2.53 3.24
Dividends per ADR
0.588 0.622 0.638 Dollars 1.871 1.702
Third Second Third
Quarter Quarter Quarter EXTERNAL Nine Months
1997 1998 1998 ENVIRONMENT 1998 1997
BP average oil
17.9 12.6 12.0 price realizations $/bbl 13.0 19.2
Indicative global
1.9 2.4 1.2 refining margin $/bbl 1.9 2.0
Chemicals
935 825 672 integrated margin DM/te 861 886
1.63 1.65 1.65 $/pounds 1.65 1.63
2.93 2.97 2.91 DM/pounds 2.96 2.81
Exploration and Production
Exploration and Production's replacement cost operating profit of $560
million was down on the $1,100 million achieved in the third quarter of 1997
when oil prices were some $6 a barrel higher. There was some offset to this
very significant oil price impact from cost savings from the initiatives
instigated earlier in the year in response to the low oil price. Oil
production was up 12% with several new fields now on stream. However, U.K.
natural gas liftings were down with Centrica liftings back at normal levels
compared with the significant overlifting which occurred last year.
Areas of significant production increase were the Eastern Trough Area
Project in the U.K. central North Sea and, west of Shetland, from Foinaven and
Schiehallion. Shortly after the quarter end, first natural gas was achieved
from the Viking Phoenix project (BP 50%) and from the second phase of the
Bruce field (BP 37% and operator).
During the quarter, BP announced a significant natural gas discovery at
the Barden exploration well in the Norwegian Sea. In the Ormen Lange South
licence PL 208 (BP 45%), preliminary estimates of natural gas reserves for the
field are in the range of 7-14 trillion cubic feet. Shortly after the quarter
end, the Dikanza oil discovery was announced in block 15 (BP 26.7%) offshore
Angola near to the earlier Hungo, Kissanje and Marimba discoveries.
3Q 2Q 3Q Nine Months
1997 1998 1998 HIGHLIGHTS 1998 1997
Replacement cost
1,100 737 560 operating profit $m 2,162 3,723
Results include:
75 61 50 Exploration expense $m 177 240
Key statistics:
Average realizations:
18.3 13.1 12.4 : North Sea $/bbl 13.3 19.3
17.3 12.0 11.7 : Alaskan North Slope (ANS) $/bbl 12.7 19.2
Crude oil and
natural gas production
(Net of royalties)
Crude oil production
375 447 493 U.K. mb/d 461 386
91 85 66 Rest of Europe mb/d 79 89
529 529 516 U.S. mb/d 530 551
213 271 273 Rest of World mb/d 272 207
1,208 1,332 1,348 Total crude oil production mb/d 1,342 1,233
Natural gas production
915 831 713 U.K. mmcf/d 923 1,200
37 30 21 Rest of Europe mmcf/d 27 38
86 116 119 U.S. mmcf/d 114 89
353 301 341 Rest of World mmcf/d 327 339
Total natural
1,391 1,278 1,194 gas production mmcf/d 1,391 1,666
1,448 1,552 1,554 Total production mboe/d 1,582 1,520
Refining and Marketing
Replacement cost operating profit was $449 million, an improvement of 3%
compared to the same quarter last year. This is despite an unfavorable
refining environment in which margins outside Europe were significantly lower.
The result reflects continuing performance improvements in all regions in both
refining and marketing.
The nine months' profit of $1,328 million was 8% higher than in the same
period of last year despite lower refining margins particularly in the U.S.,
Australasia and South East Asia. Improved operating performance in both
refining and marketing together with underlying cost savings and the benefits
from the joint venture with Mobil in Europe all contributed to the higher
result.
The refinery repositioning program continued with the commissioning of the
hydrofiner at the Nerefco refinery in Rotterdam and the disposal of the Lima,
Ohio, refinery. The reduction in refining throughput in the quarter reflects
this sale.
In marketing, the sale of the Belgian retail business was completed in
September as part of the upgrading of BP's asset portfolio.
3Q 2Q 3Q Nine Months
1997 1998 1998 HIGHLIGHTS 1998 1997
Replacement cost
434 493 449 operating profit $m 1,328 1,229
Indicative global
1.9 2.4 1.2 refining margin $/bbl 1.9 2.0
Refinery throughputs
299 313 271 U.K. mb/d 296 294
567 534 553 Rest of Europe mb/d 544 597
551 570 462 U.S. mb/d 529 546
373 353 349 Rest of World mb/d 360 374
1,790 1,770 1,635 Total throughput mb/d 1,729 1,811
Oil sales volumes
Refined products
264 256 265 U.K. mb/d 259 259
769 745 752 Rest of Europe mb/d 755 753
618 629 627 U.S. mb/d 623 605
423 416 411 Rest of World mb/d 406 419
2,074 2,046 2,055 Total marketing sales mb/d 2,043 2,036
1,015 1,348 1,314 Trading/supply sales mb/d 1,284 1,177
3,089 3,394 3,369 Total oil product sales mb/d 3,327 3,213
2,903 2,779 3,636 Crude oil mb/d 3,213 3,574
5,992 6,173 7,005 Total oil sales mb/d 6,540 6,787
Chemicals
Chemicals' underlying replacement cost operating profit for the third
quarter of $159 million was similar to the previous quarter, though the
reported result of $109 million was adversely affected by a special charge in
respect of several periodic and non-recurring items of $50 million before tax.
These include unscheduled plant shutdowns and settlement of several legal
disputes.
Compared to the previous quarter, falling product prices and lower
margins, principally in Europe, have been offset by improved volumes. Compared
to a year ago, the result has benefited from cost savings and volume
improvements. Production in the third quarter, including the effect of the
Styrenix Kunststoffe acquisition, is up 10% compared to the same quarter of
last year.
During the quarter, BP announced that it will construct a $10 million
demonstration unit for its proprietary propane-to-acrylonitrile process at its
Green Lake, Texas manufacturing facility. The unit will be integrated with one
of the three fluid-bed reactors at Green Lake and it is planned to become
operational in the second half of 1999.
3Q 2Q 3Q Nine Months
1997 1998 1998 HIGHLIGHTS 1998 1997
Replacement cost
229 167 109 operating profit $m 469 626
2,304 2,340 2,530 Chemicals' productionA kte 7,270 6,889
A Includes BP share of associated undertakings and other interests in
production.
Other Businesses and Corporate
Other Businesses and Corporate comprises BP Finance, BP Solar, the group's
remaining coal asset, interest income and costs relating to corporate
activities worldwide.
The third quarter result included a special charge of $5 million for
internal costs in respect of the proposed merger with Amoco. In addition, it
included a loss on interest rate trading positions as a result of the sharp
decline in U.S. 10 year Treasury rates and market volatility.
3Q 2Q 3Q Nine Months
1997 1998 1998 HIGHLIGHTS 1998 1997
Replacement cost
(5) (11) (29) operating loss $m (50) (29)
Exceptional Items
Exceptional items include the profits from sales of the exploration and
production interest in Papua New Guinea, the refinery in Lima, Ohio, the
Belgian retail business and the sale of some chemicals businesses.
3Q 2Q 3Q Nine Months
1997 1998 1998 HIGHLIGHTS 1998 1997
Profit (loss) on sale
or termination
(17) 12 740 of operations $m 752 (25)
2 - (136) Taxation (charge) credit $m (129) 2
Exceptional items
(15) 12 604 after taxation $m 623 (23)
Income Adjusted for Special Items
Adjusted Adjusted
Results 3Q 1998 Results
3Q 2Q Adjusted Special Reported Nine Months
1997 1998 Results ItemsA Results $ million 1998 1997
Exploration and
1,100 681 560 - 560 Production 2,106 3,723
Refining and
434 493 449 - 449 Marketing 1,328 1,229
229 167 159 (50) 109 Chemicals 519 626
Other businesses
(5) (11) (24) (5) (29) and corporate (45) (29)
RC operating
1,758 1,330 1,144 (55) 1,089 profit 3,908 5,549
(137) (135) (148) (12) (160) Interest expense(409) (405)
(493) (339) (257) 17 (240) Taxation (944) (1,568)
(2) (1) (3) - (3) MSI (4) (13)
RC profit before
exceptional
1,126 855 736 (50) 686 items 2,551 3,563
Exceptional items
740 before tax
Taxation on
(136) exceptional items
RC profit after
1,290 exceptional items
Inventory holding
(87) gains (losses)
1,203 HC profit
A The special items refer to non-recurring charges and credits reported
in the quarter.
Outlook
Crude oil prices are likely to remain subdued. Although there has been
some supply-side response to the oversupply situation, there is also some
weakening of demand and inventories remain high.
Upstream, production should reflect the continuing build-up from the newly
commissioned fields as well as seasonally higher natural gas liftings. The
build-up from new fields is expected to continue in 1999.
Downstream, refining and marketing margins and volumes are likely to
remain under pressure, due to moderating product demand and high inventory
levels.
In Chemicals, the impact of additional industry capacity and weakening
demand are putting pressure on margins and volumes. This situation is likely
to continue.
BP Group Chief Executive, Sir John Browne, concluded:
"Results remain under pressure from weak trading conditions. Cost and
productivity improvements continue to come through and offset this somewhat."
The foregoing discussion, in particular the statements under 'Outlook',
focuses on certain trends and general market and economic conditions and
outlook on production levels or rates, prices, margins and currency exchange
rates and, as such, are forward-looking statements that involve risk and
uncertainty that could cause actual results and developments to differ
materially from those expressed or implied by this discussion. By their
nature, trends and outlook on production, price, margin and currency exchange
rates are difficult to forecast with any precision, and there are a number of
factors, including the dynamic nature of economic conditions, that could cause
actual results and developments to differ materially from those expressed or
implied by these forward-looking statements. Additional information, including
information on factors which may affect BP's business, is contained in the
Company's Annual Report and Accounts for 1997 and in the Company's 1997 Annual
Report on Form 20-F filed with the U.S. Securities and Exchange Commission.
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