After months of soaring crude oil prices, BP, the world's second-biggest oil company, has reported a 43 per cent rise in third-quarter profit and forecast that prices will stay above $US30 a barrel, and possibly higher, for years to come.
But in a first from one of the oil majors, BP also talked down the prospect of oil prices remaining at record levels in the longer term. "I think it is not helpful for the world to believe that we are running out of oil, which we are not," the group's chief executive, John Browne, said.
"It seems that on the basis of the recent track record and the supply-demand balance, oil prices have a support level of around $US30 a barrel for at least the medium term, underpinned by OPEC discipline and their needs for revenue," he said.
"Prices could spike above this level if demand strength outpaces the rate at which additional production capacity comes on stream each year."
But he added that, as far as BP was concerned, it would continue to use a Brent oil price of $US20 a barrel for the purposes of planning its activity levels in the exploration and production sector.
Apart from anything else, that would ensure a portfolio of activities with strong returns. "For the BP Group, a planning assumption of $US20 a barrel remains the way to judge the balance between the amount of cash used for investment and that returned to our shareholders," Lord Browne said.
BP is the first of the oil giants to report quarterly results since oil hit record highs in excess of $US55 a barrel. While its income grew, however, the company has increased its estimate of its spending next year on major capital projects such as oil rigs by about $US1 billion ($A1.34 billion) to $US14 billion , raising some doubts among analysts about its ability to please investors with continued high levels of share buybacks and dividends. The company's stock retreated 1.2 per cent, to 531 pence ($A13).
BP announced that its pro forma profit rose to $US3.94 billion in the third quarter from $US2.76 billion in the period a year ago. What it calls its replacement-cost profit rose $US3.46 billion in the quarter from $US2.26 billion a year ago. Sales increased by a quarter, to $US73.8 billion, from $US59 billion, the company said.
Some analysts argued that the profits should have been much higher in light of the surge in oil prices, which have risen almost 70 per cent this year.
But the company acknowledged that capital expenditure, now expected to be in the region of $US14 billion this year and next, was higher than previously forecast.
"What they have gained on oil prices has been offset by expenditure," said Richard Griffith, an analyst with brokerage Williams de Broe, which rates BP stock a "buy".
"It is pointing to what you might expect in two, three, four years' time when this investment is producing results."
BP executives said the increase in capital spending was due to a variety of factors, including higher prices for steel used in building oil industry equipment and a weak dollar.
Lord Browne said the company was "on track" to achieve three targets it had set for shareholders, including increased dividends and "to distribute to shareholders 100 per cent of all free cash flows in excess of investment and dividend needs, generally when the price of oil is above $US20 per barrel".
BP said exceptional costs grew by some $US400 million in the third quarter, partly as a result of a fire at an oil rig in Egypt and production shutdowns caused by Hurricane Ivan at BP installations in the Gulf of Mexico.
- with New York Times