BP PLC
faced fresh scrutiny from investors Tuesday after quarterly earnings beat last
year's level but came in below expectations following a big drop in oil and gas
production.
BP posted a 12% rise in adjusted profit for the second quarter as it
benefited from higher crude prices and better refining margins. But oil and gas
production fell a whopping 11% compared with the 2010 quarter due in part to
anemic output in the Gulf of Mexico and unexpected maintenance in the North Sea
and Angola.
BP shares were down 11 pence to 464p at 803 GMT, the biggest drop Tuesday
morning in the FTSE 100. Analysts also had pointed questions on the slow
resumption of BP activities in the Gulf of Mexico, its growth strategy after
the demise of a major proposed deal in Russia
and the effectiveness of much-touted safety upgrades following a recent fire in
the North Sea that has further crimped output.
The U.K.-based energy giant said its clean replacement cost of supplies, a
keenly-watched figure that strips out gains or losses from inventories and
other non-operating items, for the three months ended June 30 totaled $5.60
billion, compared with $4.98 billion for the second quarter of 2010.
This was below expectations of $6.04 billion in a Dow Jones Newswires poll of
11 analysts. BP said this was due to the loss of production from high-margin
areas, such as Angola and the North Sea.
BP Chief Executive Robert Dudley said the company is "making rapid
progress" and that the results are in line with expectations that 2011
would be a "year of consolidation" after the travails of recent
years.
Total oil and gas production was 3.43 million barrels a day, a decline of
almost 11% on the year. BP said that after adjusting for acquisitions and
divestitures and entitlement impacts from production agreements, the output
decrease was 7% compared with the same period of 2010.
"BP appears to be running a business as usual strategy and we are not
convinced that the market will put up with this for much longer," said
analyst Dougie Youngson from Arbuthnot Securities. "BP has been
significantly underperforming the peer group for some time and this looks set
to continue."
Royal Bank of Canada analyst Peter Hutton said investors are anxious about BP's
difficulty controlling costs compared with peer companies. A complicating
factor is the slow progress in resuming operations in the U.S. Gulf, Hutton
added. "Other operators are getting things through and BP has a sum total
of zero approvals," Hutton said. "When you rank BP against the
others, it is quite stark."