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BP 3Q profit soars 72%
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November 8, 1999: 10:46 a.m. ET
Oil company at top end of forecasts; shares gain on Alaska deal optimism
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LONDON (CNNfn) - U.K.-based oil giant BP Amoco posted a 72 percent jump in third-quarter operating profit Monday, at the top end of expectations, boosted by higher oil prices and cost savings from last year's merger of BP and Amoco.
The company reported soaring profits as its shares were already riding high on the back of a breakthrough Friday in talks with Alaskan regulators. That deal, which came after the London stock market closed, should clear the way for the company's $26 billion purchase of U.S. explorer Atlantic Richfield (Arco).
BP's stock was up 4.5 percent at 565 pence in afternoon trade in London, after being up more than 6 percent earlier in the day.
"These are good, solid results with no surprises," Gordon Gray, oil analyst at Salomon Smith Barney in London, told CNNfn.com. "But if you look at the stock's performance over the previous week it is down 10 percent against the market on concern that the issues in Alaska would stop the takeover of Arco," he added.
"Obviously there is an element of relief and a much improved chance that the deal will be done before the end of the year," Gray said.
The company, one of the world's three biggest publicly-listed oil producers alongside Exxon and Royal Dutch/Shell, said third-quarter operating profit rose 72 percent to $1.96 billion on a replacement-cost basis. That included one-time charges of $212 million, reflecting merger-related expenses and a writedown in the value of an Alaskan oil field.
Analysts' earnings forecasts ranged from $1.65 billion to $1.97 billion.
The near-doubling in the price of oil contributed to BP Amoco's record earnings. Crude oil averaged $20.60 a barrel in the third quarter, up from around $12.50 per barrel in the same period a year earlier.
The company also cited merger benefits, with the combination of BP and Amoco generating some $400 million in cost savings as output rose. Total production for the quarter was up 4 percent from last year's third quarter, led by an 11 percent rise in gas output.
The performance of BP's so-called downstream operations, which include oil refining, marketing and chemical production, continued to weigh on the results however, as global overcapacity keeps prices low.
BP's chief executive John Browne said the company had met the $2 billion cost-saving target it set when it acquired Amoco at the end of last year. "We remain well on track to meet all the new targets laid out in July," Browne added.
The oil company set a new goal of $4 billion in cost savings annually by the end of 2001 and said it would sell some $10 billion in assets, while boosting capital spending to $26 billion over that period.
Return on average capital employed, one of the key measures analysts use to gauge an oil company's performance, jumped to 16 percent, some six percentage points better than in the third quarter last year.
"They have come out with a staggering return on capital employed compared with their peer group," said John Toalster, oil analyst at SG Securities.
Nine-month operating profit rose 12 percent from a year earlier to $6.2 billion on a replacement-cost basis.
The main gain in the shares came in reaction to the news that BP had agreed to sell 13 percent of its production from Alaska's North Slope in return for the Alaskan state government's approval for its takeover of Arco.
Alaska had previously expressed concern that the deal would bring together the two biggest oil producers in the state.
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BP Amoco
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