4th Oct 2005 07:00
BP PLC04 October 2005 October 4th, 2005 BP Third Quarter 2005 Trading Update This trading update is aimed at providing estimates regarding revenue andtrading conditions experienced by BP in the third quarter ending September 30,2005, and estimates of identified non-operating items expected to be included inthat quarter's result. The third quarter margin, price, realisation, cost,production and other data referred to below are currently provisional, somebeing drawn from figures applicable to the first month or so of the quarter. Allsuch data are subject to change and may differ quite considerably from the finalnumbers that will be reported on October 25, 2005. This trading update isproduced in order to provide greater disclosure to investors and potentialinvestors of currently expected outcomes, and to ensure that they all receiveequal access to the same information at the same time. Impact of Hurricanes Katrina and Rita The trading conditions experienced by BP in the third quarter of 2005 weresignificantly impacted by Hurricanes Katrina and Rita and their aftermath. Theseeffects include profits foregone due to lost oil and gas production from the USGulf of Mexico, where BP is a leading producer, as well as reduced refinery runsat BP's Texas City refinery and reduced marketing margins as a result of thesharp rise in wholesale petroleum product prices following disruption to the USrefining system. Additional costs were incurred due to facilities damage, cleanup and repairs. Although it is not yet possible to exactly quantify theseimpacts, BP currently estimates that the impact of these factors on thirdquarter replacement cost profit before interest and tax will be in excess of$700m. Resources Business: Exploration and Production Marker Prices 3Q'04 4Q'04 1Q'05 2Q'05 3Q'05Brent Dated ($/bbl) 41.54 43.85 47.62 51.63 61.63WTI ($/bbl) 43.88 48.29 49.88 53.08 63.18ANS USWC ($/bbl) 41.82 42.62 45.07 50.01 60.91US gas Henry Hub first of month index($/mmbtu) 5.75 7.07 6.27 6.74 8.53UK gas price - National Balance Point(p/therm) 23.63 28.51 37.96 30.15 29.26Urals (NWE - cif) ($/bbl) 37.23 37.75 42.54 48.08 57.13Russian domestic Oil ($/bbl) 23.33 22.30 19.14 27.39 36.60 Overall BP production in 3Q'05 is expected to be lower than 2Q'05 reflecting theimpact of Hurricanes Katrina and Rita (circa 145 thousand barrels of oilequivalent a day, mboed) in the Gulf of Mexico and the planned maintenanceseason (circa 160 mboed) primarily in the North Sea, which was approximately 45mboed higher than the 3Q'04 level. These two locations represent some of ourhighest margin volumes. Excluding volumes from TNK-BP operations, production in 3Q is expected to bearound 2,800 mboed. BP's net share of production from TNK-BP is anticipated tobe approximately 1,000 mboed. Adjusting for the impact of Hurricanes Katrina and Rita (with an expected fullyear impact of around 80 mboed) and the impact of higher prices on productionsharing contracts (with an expected full year impact of around 50 mboed), BP'saverage production for the year is expected to be in line with the range of4,100 - 4,200 mboed indicated in our presentation of February 8, 2005. Relative to 2Q'05, liquids realisations have increased by less than the increasein marker prices as a result of widening differentials. In the US, gas basindifferentials have widened significantly, and our estimated realisations haveincreased around $0.50/mcf, compared with a rise of around $1.80/mmbtu rise inthe Henry Hub marker. Approximately $100m of additional costs were incurred in the quarter to secureand repair the Thunder Horse facility. Sector specific cost inflation continuesto reflect the increasing strength in commodity prices. Refining and Marketing Refining Indicator Margins ($/bbl) 3Q'04 4Q'04 1Q'05 2Q'05 3Q'05USA- West Coast 11.28 10.36 12.88 14.53 17.57- Gulf Coast 6.99 5.52 7.30 9.37 17.12- Midwest 5.01 1.65 3.84 7.45 13.40North West Europe 4.37 4.72 2.84 5.68 7.78Singapore 5.48 8.02 4.98 6.30 6.52Refining Global Indicator Margin*($/bbl.) 6.39 5.69 5.94 8.42 12.35 \* The refining Global Indicator Margin (GIM) is a generic indicator. Actualmargins realised by BP may vary significantly due to a variety of factors,including specific refinery configuration, crude slate and operating practices. The third quarter's average refining Global Indicator Margin (GIM) was higherthan in both 2Q'05 and 3Q'04. The rise in BP's actual realised margins wasaround half the increase indicated by the GIM. This was due to actual yieldsdiffering from the generic industry yield structure reflected in the GIMcalculation, and the impacts on refining availability of continuing Texas Cityplant shut downs and hurricane effects. Third quarter marketing and retail margins were down significantly on 2Q'05,with the overall marketing result expected to be negative. This was due to thesharp rise in wholesale product prices, which squeezed marketing margins. Gas, Power and Renewables Due to strong contributions from the gas marketing and NGL businesses, marginsin the GP&R business are expected to be slightly higher than both 2Q'05 and3Q'04. Other Businesses and Corporate (including Olefins and Derivatives) Other Businesses and Corporate Other Business and Corporate results, excluding Olefins and Derivatives, areexpected to be in line with guidance given in our February '05 investor webcastfor an annual charge of $900m +/- $200m, indicating an expected quarterly chargeof around $175 - $275m in 2005. Olefins and Derivatives Olefins and Derivatives margins weakened from the levels of 2Q'05 due tofeedstock costs rising faster than end product prices. Results for Olefins andDerivatives are reported in Other Businesses and Corporate, and will bedescribed separately in supplemental disclosures in our Stock ExchangeAnnouncement. Consolidation Adjustment The consolidation adjustment, which removes the margin on sales between segments(mainly sales of Alaskan crude oil to US West Coast refining and marketingoperations), is expected to amount to a charge of around $300m. Identified Non-Operating Items (NOIs) Non-operating items in 3Q'05 are expected to amount to a total charge of around$500m, of which approximately $450m relates to the annual review ofenvironmental and other provisions. Interest Expense The total consolidated interest charge is expected to be similar to 2Q'05 and ayear ago. Tax Rate The effective tax rate for the quarter is expected to be between 32% and 33%,slightly above the level in the first half of the year. Gearing Gearing for the quarter is expected to remain slightly below the bottom end ofour 20-30 per cent band for net debt to net debt plus equity, reflectingcontinued strong cash generation. Distributions to Shareholders During the quarter the company bought back 327 million shares for a totalconsideration of $3.7bn. Shares outstanding at September 28, 2005, excludingtreasury shares and including the second issue of shares to AAR in respect ofTNK-BP, were 20,984 million. As in previous quarters, BP has entered into anarrangement that allows it to continue the share buy back programme during theclosed period commencing on October 3. The 3Q'05 dividend of 8.925 cents per share announced at the time of our 2Q'05results was paid in September. The dividend to be paid in 4Q'05 will beannounced on October 25 in conjunction with our 3Q'05 Stock ExchangeAnnouncement. Rules of Thumb Important note: The rules of thumb shown below were provided with BP's strategyupdate on February 8, 2005 and were intended to give directional indicators ofthe impact of changes in the trading environment relative to that of 2004 onBP's 2005 full year pre-tax results. These rules of thumb are approximate. Asprices and margins have deviated sharply from those seen in 2004, and volatilityhas increased, these rules of thumb have become less accurate in quantifying theimpact of changes. Especially over short periods, changes in differentials,seasonal demand patterns, and other factors can be material. Particulardifferences may arise due to higher government shares of Exploration andProduction revenues in some jurisdictions at current price levels, as well asfrom variations between the refining Global Indicator Margin (GIM) and BP'srealized refining margins due to crude price levels and differentials, productprice movements and other factors. The GIM rule of thumb reflects thesensitivity to the overall group to changes in refining margins. Within therefining rule of thumb shown below, about 13% of the sensitivity shown relatesto the refineries transferred to the Olefins and Derivatives business. Manyother factors will affect BP's earnings quarter by quarter. Actual results inindividual quarters may therefore differ significantly from the estimatesimplied by the application of these rules of thumb. 2005 Operating Environment Rules of Thumb: impact on operating profit per yearof changes relative to 2004 environment Full YearOil Price - Brent +/- $1/bbl $500mGas - Henry Hub +/- $ 0.10/mcf $100mRefining - GIM +/- $ 1/bbl $1100m - ENDS - This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
BP