BP Earnings Miss Estimates on Sliding Refinery Margins

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Integrated oil and natural gas BP (BP) Tuesday reported fourth-quarter earnings per share of $1.10, well below the Thomson/Reuters First Call consensus estimate of $1.51. The global energy giant also said it sees a "slow and gradual" recovery from the recession.

For all of 2009, BP earned $4.47 per share, below the Thomson/Reuters First Call estimate of $4.73. By comparison, in last year's fourth quarter, BP earned 84 cents per share, and for all of 2008 it earned $8.17 per share.BP posted fourth-quarter revenue of $73.6 billion compared to the Thomson/Reuters First Cal estimate of $56.3 billion. Full-year 2009 revenue totaled $246.1 billion versus the consensus estimate of $234.6 billion.

BP's shares sold off in early London trading Tuesday on the news, falling about 5%, or 28.40 pence, to 566.20 pence.

Not Much Better for 2010

BP's energy production rose to 4.05 million barrels per day of oil equivalent in 2009, up from 3.95 million barrels in 2008. Looking forward to 2010, BP said "we expect refining margins to remain weak."

While average oil prices were higher in 2009 than 2008, BP, like other integrated oi giants that refine oil into gasoline, was again hurt by weak refining margins stemming from soft demand for gasoline. BP did increase refinery capacity utilization to 93.6% and decreased refinery costs in the fourth quarter, but still posted a $1.94 billion quarterly loss for its refining and marketing component, including a $2.33 billion loss for its U.S. refining/marketing division.

Further, refining margins in the quarter plunged to $1.49 per barrel from $5.20 in fourth-quarter 2008.

On the bright side, BP's replacement rate is sufficient -- it's finding more oil than it's producing -- and overall production growth is adequate. But it will need a tailwind from the global economy to improve refining margins and results in the quarters ahead. The recession that's triggered more than 7.6 million layoffs in the U.S. alone has taken millions of motorists off the roads -- reducing demand for gasoline, which has led to low refining margins, sectorwide.

Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.
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