Investments

Bank Of America Investment After months of soaring crude oil prices, BP, the world's second-biggest publicly traded oil company, reported a 43 percent rise in third-quarter profit on Tuesday and forecast that prices would stay above $30 a barrel, and possibly higher, for years to come.

While Wall Street's concern over foreign oil prices loom on the edge of winter's demands for heating oil, domestic companies are profiting.

Investment Opportunity BP is the first of the oil giants to report quarterly results since oil hit record highs in excess of $55 a barrel. While its income grew, however, the company increased its estimate of its spending next year on major capital projects like oil rigs by about $1 billion, to $14 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 percent, to 531 pence.

Oil prices surged almost 3% on Monday, up $2.86 a barrel to US$109.09 amid supply concerns following a large refinery fire in Finland over the weekend.

Banc Of America Investment Lord Browne, BP's chief executive, told reporters in London that he believed that a combination of high demand for oil, particularly from China, and a reduction in spare capacity among oil producers had pushed prices to record highs.

Higher oil revenue, strong liquidity, 06 led to a surge in asset prices (shares and real estate) and consumer inflation.

Banking Investment "It seems that, on the basis of the recent track record and the supply-demand balance, oil prices have a support level of $30 per barrel for at least the medium term," Lord Browne said, indicating that his forecast was for the next four years.

Tax is the major impediment, says Ms Redman. The government levies an export duty of 65% at prices over $25 a barrel. Add to that various corporate, payroll and production taxes, oilmen complain, and the state creams off as much as 92% of profits. BP have argued that rising costs across the oil industry will make many investments in Russia unprofitable unless the tax regime is changed. As it is, BP accounts for a fifth of BP’s production, but only a tenth of its profits..

Investment Solution Strategic "Prices could spike above this level if demand strength outpaces the rate at which additional production capacity comes on stream each year," he said.

SWF, backed investment vehicles, have proliferated in recent years thanks to high oil prices and surging Asian Exports, to a total worth of about $3 Trillion, but growing fast while amassing enormeous currency reserves.

Investment Banking Services At the same time, though, he took issue with assertions that global oil supplies are running out. "I think it is not helpful for the world to believe that we are running out of oil, which we are not," he said.

Bank Investment Lord Browne was speaking after BP announced that its pro forma profit rose to $3.94 billion in the third quarter from $2.76 billion in the period a year ago. What it calls its replacement-cost profit rose to $3.46 billion in the quarter from $2.26 billion a year ago. Sales increased one-quarter, to $73.8 billion, from $59 billion, the company said.

Alternative Investment Some analysts argued that the profits should have been much higher in light of the surge in oil prices, which have risen almost 70 percent this year.

Online Investment Services But the company acknowledged that capital expenditure, now expected to be in the region of $14 billion this year and next, was higher than previously forecast.

Accompany Essential Investment "What they have gained on oil prices has been offset by expenditure," said Richard Griffith, an analyst with the brokerage firm Williams de Bro, which rates BP stock a buy.

Investment Company "It is pointing to what you might expect in two, three, four years' time when this investment is producing results," Mr. Griffith said.

Investment Management Solution BP executives said the increase in capital spending was caused by a variety of factors, including higher prices for steel used in building oil industry equipment and a weak dollar.

Investment Management Services But the company said its ability to buy back shares and pay dividends would be maintained by continuing to use a nominal price of $20 a barrel to calculate "the balance between the amount of cash used for investment and that returned to our shareholders."

Guide Investment Stock 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 percent of all free cash flows in excess of investment and dividend needs, generally when the price of oil is above $20 per barrel."

Investment Manual Solution BP said exceptional costs grew by some $400 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.

Investment Stock Some analysts said those problems could prevent the company from reaching its production target of 4 million barrels of oil and gas a day. But Lord Browne rejected those suggestions, saying he still estimated that the company would meet its 2004 production target. The company said third-quarter production was just more than 3.9 million barrels of oil and gas a day - 11.5 percent higher than a year ago.

Essential Investment Solution That figure reflected the rapidly rising production at new Russian fields. BP said its share of oil and gas from the TNK-BP joint venture in Russia totaled 945,000 barrels a day as production there rose by 14 percent.

Citicorp Investment Services Lord Browne was asked what BP planned in Iraq. He indicated that his company is holding off seeking major business until security improves and the Iraqi authorities decide how they wish to develop the country's oil industry.

Fool Guide Investment Motley "We recruit people who are executives,'' he said. "They are not recruited as soldiers and therefore do not expect to go into places as difficult as Iraq at this time.''

Fidelity Investment Services "The government of Iraq must decide what it wants to do" with its oil businesses, Lord Browne said. It is not as clear "as night follows day that foreign companies need to be involved," he said. "These decisions have yet to be made."

Investment Management By Alan Cowell
New York Times - 10/27/2004

Topic: Petroleum Industry

[ Comment, Edit or Article Submission ]