The once mighty BP, now in recovery mode following the disastrous Gulf of Mexico oil spill, is beginning to feel the effects of its massive asset disposal programme.
The company's key "underlying replacement cost profit" metric was down sharply in the first quarter. This figure strips out changes to the value of inventories and similar one off costs, so gives a good view of a firm's performance. After tax, it dropped to $4.8bn, down from $5.5bn in the first quarter of 2011. The market had been expecting a figure of $5bn, so this was a significant undershoot.
Earnings per ordinary share came in at 25.29 cents, versus 29.25 cents the year before.
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In order to pay for the clean-up and compensation costs from the Gulf of Mexico incident BP is aiming to flog around $38bn of its non-core assets by the end of next year; so far it has managed to raise $23bn. Currently on the block are five of its fields in the Gulf of Mexico.
The problem for BP is that by selling assets it loses production capacity. Production for the quarter was 2,452m barrels of oil equivalent per day, that's 6% lower than the first quarter of 2011 although after adjusting for the effect of its asset sale, and production-sharing agreements, production increased slightly year on year. In other words, the bits of the BP empire that still remain are doing pretty well. In Tuesday's update the firm cites a stronger performance in Angola and new production from India which it claims are offsetting the drop in production in the Gulf of Mexico.
"Looking ahead, we expect second-quarter reported production to be lower, and costs to be higher, as a result of normal seasonal turnaround activity concentrated on high-margin production in the Gulf of Mexico at Atlantis, Mad Dog and Holstein," the company said.
BP's two years of pain have not just been about the Gulf of Mexico tragedy. The company came agonisingly close to pulling off a deal to develop fields in the immense Russian north, in conjunction with the state oil giant Rosneft. Unfortunately its partners in another Russian venture, TNK-BP, threw a spanner in the works, sending Rosneft into the arms of BP's US rival (and the world's biggest oil company) Exxon Mobil.
Nevertheless BP is still investing in its portfolio, organic capital expenditure for the first quarter was $5.44bn, significantly up on the $3.7bn spent in the first quarter of 2011.
Disposal proceeds were $1.3bn for the quarter. The first quarter dividend is the same as the 8 cents paid in the preceding quarter.
BP's share price had dropped 3.5% by 10:05 as investors rued the lower replacement profits. The group is still 30% below its April 2010 level when the Gulf of Mexico tragedy took place.
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