BP fails to Impress Despite Profit Rise

abarrelfull wrote on 03 Feb 2010 07:45
Tags: bp profits

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The final quarter results form BP have been announced and they are being reported slightly differently.

From BP:

BP Delivers on Promises in “Very Good” 2009 as 4Q Profits Jump 70 per cent

BP today reported a sharp year-on-year increase in fourth quarter profits as it announced that its oil and gas production increased by more than four per cent in 2009 and the company continued its industry-leading 17-year run of increasing reserves.

It was no doubt a good result, but the market was expecting more.

From Business Week

“They have disappointed relative to some reasonably high expectations,” said Christopher Wheaton, who manages about $400 million at Allianz RCM’s Energy Fund in London. “What’s really disappointing is the refining business, which has struggled.”

Complex energy conglomerates like BP are of course difficult to understand. However, the shortfall came from a fairly unsurprising place.

The miss was mainly due to BP barely breaking even in its refining business, one of the most advanced in the industry. Analysts had expected a weak quarter after average margins fell to their lowest level since the first quarter of 1995, but BP said its margins were even weaker than the average.

After the bumper profits of recent years, it is getting difficult to please the markets and the refining side of the business is really in the doldrums. BP has announced further cost cutting plans, but does not seem to be looking at disposals. To me this seems like the right strategy long term as the current market is oversupplied with refineries seeking new homes.

As I have said before, even as these companies generate Billions in profits, they face a very difficult future, and only the best run will be able to perform.

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