There was a sting in the tail of the latest quarterly profits from BP. But while it might spell bad news for shareholders, the rest of us should be whooping with joy.
Yesterday the company announced that third quarter profits and the replacement profits (that’s the measure the markets seem to put the most credence on), hit $4.4bn, from $3.8bn a year ago. But thanks to hurricane damage in the Gulf of Mexico and exceptional charges relating to its Innovene chemicals business, the profits were less than they could have been, and in fact down on the Q2 replacement profits which were just a few nickels short of $5bn.
With the price of oil so high, it is of course a bumper time for BP, as indeed it is with the other oil giants. The company’s annual profits are well on course to be the highest ever. But there are problems.
First Thunder Horse, its semi-submersible platform - which when on stream is due to produce 1/4million barrels of oil a day, making it the largest facility of its kind in the world - has been hit by delays. In the aftermath of Hurricane Dennis, it was discovered to be tilting to one side - but BP says that the problems with the platform have nothing to do with the storms. According to BP’s Lord Browne: “After a thorough investigation, we have concluded that it was not storm-related but caused by design weakness in the ballast system, which has been corrected offshore.” But whatever the reason, it’s not now due to come on stream until Q2 next year.
Then there’s talk that its US management are not sufficiently focused on safety. - Who said so? Former US secretary of State, James Baker, no less. He is leading an investigation into the cause of the explosion at a refinery in Texas, which claimed 15 lives. Mr Baker said: “We will determine if the corporate culture at BP Products North America is properly focused on preventing tragic incidents such as the one that occurred in Texas City, or if improvements are required.”
But with oil up in the $60 plus mark- BP can’t help but make massive profits.
The sting, which could be bad news for BP, but good news for Joe Consumer and the economy at large, derives from a comment from Lord Browne. He said that oil will be “well supported through the winter”, before dropping in the medium term to “more like $40″.
Lord Browne also had words of encouragement on the longer-term outlook too. Perhaps the most controversial issue relating to the oil industry right now is the question of how close we are to peak oil - the point at which annual oil production will start to fall. The pessimists say we are almost there now and that the oil price will steadily go up and up, and without a cost effective alternative that spells doom and gloom for the global economy. Lord Browne, however, said: “Many people are influenced by the view that oil production has peaked. We don’t believe that.”
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