BP, Europe's second-largest oil company, reported a 17% drop in first-quarter earnings Tuesday on lower oil prices and declining production.
Net profit for the three months ending March 31 fell to $4.66 billion (3.43 billion euros) from $5.62 billion in the first quarter last year. Revenue declined 3% to $62.04 billion (46.7 billion euros).
BP was the first of the major European oil companies to report quarterly results, with most others also expected to record profit declines amid dwindling output and rising costs before a recovery in the second quarter. However, analysts said the results put BP at the bottom of the pack, particularly given its safety troubles in the United States.
"Faced as it is with reduced production and higher costs, lower oil prices and the ongoing barrage resulting from its earlier failures, its challenges are not yet over," said Hargreaves Lansdown analyst Richard Hunter.
Tony Hayward, the current head of exploration and production, has been charged with the task of reviving investor confidence in BP when he takes over as chief executive in the summer, replacing John Browne.
Safety Issues
Browne's annual performance bonus for last year was cut almost in half as oil spills and safety lapses in the United States overshadowed record profits for the oil company. He is stepping down by the end of July, more than a year ahead of the previously announced schedule.
BP Chairman Peter Sutherland told shareholders at the annual meeting earlier this month that the company is making "good progress" on safety issues following the 2005 Texas City refinery explosion that killed 15 workers and an Alaskan pipeline oil spill.
Sutherland said the company expected to make an announcement next month on the appointment of an independent safety expert, as recommended by an investigation led by U.S. Secretary of State James Baker.
Hunter said the market was "cautiously positive" about BP's earnings and outlook. Its shares rose 0.5% to 580.5 pence ($11.59; 8.55 euros) on the London Stock Exchange
Oil Production
BP's replacement cost profit -- which measures the amount it would cost to replace assets at current prices and is viewed by many analysts as the best measure of an oil company's underlying performance -- came it at $4 billion (2.95 billion euros), down 24% from last year but in line with analysts' expectations.
Total oil and gas production was lower as expected in the quarter, at 3.91 million barrels of oil equivalent a day, compared to 4.04 million per day a year earlier. The company said that Brent crude was down 7% on average over the quarter at $57.80 a barrel.
However, Citigroup said that industrywide average refining margins were up 44% in Northwest Europe and 27% in the U.S Gulf Coast. BP missed most of that increase because its Texas City refinery is still operating at 57% of capacity and its Whiting, Indiana, refinery began operating at half its capacity in late March.
The quarterly result included a net non-operating profit of $363 million (267.8 million euros), mostly due to the sale of its exploration and production and gas infrastructure business in the Netherlands and accounting gains related to North Sea contracts. The gain compared to a net non-operating charge of $17 million (12.54 million euros) for the same period last year.
The earnings also included the cost of BP's $1.1 billion (810 million euros) acquisition of Chevron's Dutch manufacturing company, which includes a 31% stake in the Nerefco refinery.