BP Plc Chief Executive Officer Robert Dudley said “all options” are possible including a refining spinoff as Europe’s second-biggest oil company reported earnings that missed analysts’ estimates.
“We are open to all kind of ideas, but they have to be ones that build long-term value for shareholders, not a short- term pop,” Dudley said in a Bloomberg television interview today. “We will continue to look at those options.”
Splitting up the company could unlock as much as $100 billion for investors because its assets are worth more than its market value, JPMorgan Cazenove said this month. BP shares are down 28 percent since last year’s Gulf of Mexico spill even after Dudley sold assets to shore up the balance sheet.
“Management will come under more pressure to do something radical with its strategy,” said Peter Hutton, an analyst at RBC Capital Markets in London. “The numbers are disappointing and profitability is the lowest we’ve seen in some time.”
ConocoPhillips said earlier this month it will spin off its refining operations in the first half of 2012 to focus on exploration and production in Texas, Norway, China and the U.K. Its plan follows a similar move announced by Marathon Oil Corp. at the start of the year.
BP reported net income of $5.6 billion in the second quarter, compared with a record $17 billion loss in the year- earlier period, according to a statement by the London-based company earlier today.
Adjusted for one-time items and changes in inventory, profit was also $5.6 billion, below the average estimate of $5.9 billion in a Bloomberg survey of 12 analysts.
“It was a heavy maintenance period and production in the Gulf was down, while taxes were higher,” said Christine Tiscareno, an equity analyst at Standard & Poor’s in London. “They have their work cut out for them.”
BP fell as much as 2.9 percent in London trading, the steepest intraday decline since April. The shares were at 466.05 pence as of 1:30 p.m. local time.
Production slipped 11 percent from a year earlier to 3.43 million barrels of oil equivalent a day, mainly due to the suspension of drilling in the Gulf of Mexico and the company’s divestments. Higher turnaround times and maintenance also lowered output.
‘Could Do Better’
“We could do better, we will do better going forward,” Dudley said in the interview. “This is probably one of our tougher quarters.”
Iain Conn, head of the refining and marketing unit, also told reporters that splitting up the company was an option.
“We’ll consider our strategic options extremely carefully,” Conn said after a press conference at BP’s headquarters. “We have an urgent intent to restore the value of this company. That’s not suggesting any particular direction, it’s just saying we have a lot of options and we’re determined to get it right.”
Since taking over in October, Dudley has overseen the sale of $25 billion of fields in Argentina, Colombia, Pakistan and Vietnam. While freeing up cash, asset disposals have also reduced the company’s output as oil prices gained.
The effective tax rate rose to 35 percent in the second quarter from 30 percent a year ago. The dividend was maintained at 7 cents a share.
Dudley’s plan is to focus on higher-growth fields and new discoveries. He signed a $7 billion deal with Reliance Industries Ltd. to explore offshore India, and planned an $8 billion tie-up with OAO Rosneft to explore Russia’s Arctic Kara Sea in January that was later blocked by the billionaire partners in the TNK-BP venture.
BP said that future cash flows will grow faster than output as more profitable production comes on stream. BP has yet to return to drilling in the Gulf of Mexico since President Barack Obama halted deepwater exploration in the wake of the spill. The ban was lifted Oct. 12.
Higher oil prices and refining margins supported BP’s second-quarter earnings. Brent crude prices averaged $117 a barrel in the second quarter, compared with $79 in the year- earlier period. As a rule of thumb, BP says that each $1 increase in the price of Brent will bolster profit by about $380 million a year, according to its website.
Global refining margins rose to an average of $13.92 a barrel in the second quarter from $11.04 year ago, according to BP’s refining marker margin.
© Copyright 2017 Bloomberg News. All rights reserved.