BP Says ‘Little Evidence’ of Recovery After Net Falls

July 28 (Bloomberg) -- BP Plc, Europe’s biggest oil company, said profit fell 53 percent on lower energy prices and there is “little evidence” of a recovery in demand.

Second-quarter net income fell to $4.39 billion, or 23.16 cents a share, from $9.36 billion, or 49.23 cents, in the year- earlier period, London-based BP said today in a statement. Excluding one-time items and inventory changes, earnings beat analyst estimates.

Almost two years into a turnaround led by Chief Executive Officer Tony Hayward, BP said estimated cost cuts would exceed an earlier target as it increased production to more than 4 million barrels a day. The recovery will be “long and drawn out” as demand stabilizes following “significant falls’ in the first half of 2009, Hayward said.

The results “are ahead of expectations, but it’s on lower taxation,” said Jason Kenney, an Edinburgh-based analyst at ING Wholesale Banking who has a “buy” rating on the stock.

BP will be followed by results for Royal Dutch Shell Plc, its larger rival, as well as Total SA of France and Spain’s Repsol YPF, later this week.

Shell may say July 30 that adjusted earnings fell 69 percent to $2.42 billion, a survey of 17 analysts showed. Exxon Mobil Corp., the largest U.S. oil company, releases results the same day and is expected to post adjusted earnings per share of 98 cents, according to the average of 16 estimates.

Adjusted earnings at BP were $2.94 billion, beating the $2.82 billion median estimate of 17 analysts compiled by Bloomberg.

‘Good Progress’

BP plans to cut costs by an additional $1 billion this year after surpassing a full-year target of $2 billion.

“Despite the current climate, we are making good progress in growing our upstream, turning around our downstream and driving cost-efficiency across the group,” Hayward said in a statement.

BP was little changed at 518.25 pence as of 8:56 a.m. in London. The stock is down 1.5 percent this year, compared with an 11 percent decline for Shell.

Of the 43 analysts tracked by Bloomberg who cover BP, 29 recommend buying the shares, 10 advise holding the stock and four say “sell.

U.S. oil futures averaged $59.79 a barrel in the second quarter, 52 percent lower than a year earlier, while gas futures slumped 67 percent.

Reiterates Investment

BP reiterated a plan to invest under $20 billion in projects this year. Losses from inventory holdings narrowed to $1.25 billion from $2.61 billion a year earlier because of lower taxes.

The explorer has restored its Texas City refinery operations to full capability. The overall refining availability rose 5.3 percentage points to 93.6 percent in the quarter, the highest level since the first quarter of 2005.

Refining margins, the profit from turning crude into fuels such as gasoline and diesel, slipped about 40 percent in the second quarter from a year earlier, according to BP’s Web site. The company’s Global Indicator Margin, a broad measure of refining profitability, slid to $4.98 a barrel from $8.25.

The biggest drop in fuel demand in almost three decades has prompted oil companies to shelve new refining projects. BP and Irving Oil Corp. canceled plans last week to build a second refinery in St. John in the Canadian province of New Brunswick.

BP became the largest oil and gas producer in the Gulf of Mexico after boosting output from the Thunder Horse platform and bringing online the Dorado and King South fields.

BP reversed two years of falling output in 2008, when total production rose to 3.8 million barrels of oil equivalent a day. Total oil and gas production in the second quarter increased 4.6 percent to 4.005 million barrels of oil equivalent a day from a year earlier.

“BP stands out among the majors with the Thunder Horse ramp-up and lower exposure to gas seasonality,” Mark Bloomfield, a London-based analyst at Citigroup Inc., said before the earnings were released.

First LNG

BP reinforced its Asian liquefied natural gas business when the first LNG cargo left its Tangguh plant in Indonesia on July 6. It aims to increase crude and gas production through 2020 from existing reserves.

On June 30, BP and China National Petroleum Corp. were awarded an oil-field development contract by Iraq in the nation’s first international tender for more than 30 years.

In October 2007, Hayward pledged to close an operational gap with rivals and regain investor confidence after a fatal explosion at a U.S. refinery and delays in starting projects.

BP named Ericsson AB Chief Executive Officer Carl-Henric Svanberg on June 25 as a replacement for its chairman Peter Sutherland. He will join BP’s board as a non-executive director on Sept. 1 and take over as chairman at the end of the year.

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