British Petroleum
03/09/2006
 Last year's hurricanes could not stop oil industry heavyweight British Petroleum (BP) from achieving record results. Replacement cost (RC) profit rose an impressive 25 percent to US$19,314 million. Strong energy markets and high refining margins were the primary drivers of performance. Having successfully navigated the challenges of the storms, closure of a large refinery and tight retail margins, the prospect for earnings growth in 2006 is excellent in our opinion.
BP's Exploration and Production (E&P) division was the primary beneficiary of rising oil and gas prices in 2005. RC profit before tax and interest soared to US$25,491 million. This result was impressive, given BP estimates opportunity losses from the hurricanes at US$1.6 billion.
Average production rose to just over 4.0 million barrels of oil equivalent per day (mboe/d) as new projects ably made up for declining volumes at more mature fields. With 20 new projects scheduled to come on-line in the next three years, we are optimistic this trend will continue.
We are also heartened by BP's ability to replace reserves consumed. Last year (for the 13th consecutive time), BP fully replaced annual production.
Closure of the Texas City refinery, accounting changes and rationalisation charges prevented BP's Refining and Marketing group from taking full advantage of a 36 percent rise in average margins. RC profit before tax and interest declined 16 percent to US$4,405 million. However, we believe 2006 will herald an improvement in the division's performance as BP is dedicating US$4.5 billion over the next 3 years to improve operations.
The Gas, Power and Renewables business was a solid performer last year. RC profit before tax and interest rose a respectable 10 percent to US$1,009 million. 
A move into the low carbon market took a major step forward with the creation of BP Alternative Energy. Over the next ten years, BP intends to invest up to US$8 billion at the new division.
Barring a dramatic slowdown in global growth, energy prices will remain stubbornly high in our opinion. With production, refining margins and throughput rising, BP is well positioned to further benefit from robust energy markets this year.
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