BP First-Quarter Profit Drops on Output, Dividend Raised

BP Plc, the U.K.’s second-largest oil producer, said profit fell because of lower output and a drop in earnings at refineries.

Earnings adjusted for one-time items and inventory changes fell to $3.2 billion in the first quarter from $4.2 billion a year earlier, the London-based company said today in a statement. That was in line with the $3.2 billion average estimate of 10 analysts in a Bloomberg News survey. The stock rose after the company raised the quarterly dividend 8.3 percent to 9.75 cents a share.

“This is a very solid start to 2014,” Chief Executive Officer Bob Dudley said in the statement. “Operating cash flow was strong in the first quarter. We have seen further exploration success and upstream project startups.”

Dudley, trying to rebuild BP’s balance sheet after the 2010 Gulf of Mexico spill while increasing returns to shareholders, has sold more than $38 billion in assets in the past few years and plans to divest another $10 billion by the end of 2015. BP expects to distribute proceeds from disposals to investors, with a bias toward buy backs, it said today.

“The dividend increase was surprising as they’ve done it earlier than expected, so that’s positive,” Iain Reid, an analyst at BMO Capital Markets in London, said by phone. Reid has a market perform rating on the shares.

The shares advanced 2.9 percent to 502.6 pence at the close in London trading, the biggest gain in six months. That values the company at 93 billion pounds ($157 billion).

Angola Work

Underlying production outside Russia was slightly lower than a year ago because of works in Angola, the company said today. Reported production was 8.5 percent less than the first quarter last year due to divestments and the expiry of a concession in Abu Dhabi. It expects production to fall in the second quarter due to seasonal maintenance in the North Sea and Gulf of Mexico, it said.

Declining margins from processing crude into fuels also squeezed profits as refiners in Europe contend with falling demand and overcapacity. BP’s earnings from the business dropped to $1 billion from $1.6 billion a year earlier.

The company has sold assets worth about $3 billion on its way to the $10 billion target, it said today. Last week, it agreed to sell stakes in four oil fields in Alaska, while continuing to develop and produce from the giant Prudhoe Bay. BP will halt operations at its Bulwer refinery in Australia next year and will form a separate business to manage onshore oil and gas assets in the U.S. It’s taken a $521 million writedown on its Utica shale project in the U.S., it said today.

Russia Sanctions

Three major projects started in the first quarter -- Chirag in Azerbaijan, and the Na Kika Phase 3 and Mars-B projects in the Gulf of Mexico, BP said. It will continue to increase production in the Gulf through the year, it said.

BP acquired 20 percent of Russia’s OAO Rosneft last year as part of an exchange for its half of Russia’s third-largest oil company. Rosneft, run by Russian President Vladimir Putin’s close associate Igor Sechin, became the largest publicly traded oil producer after the deal, pumping about 5 percent of world output.

The U.S. expanded sanctions yesterday against Russian individuals and companies following the annexation of Ukraine. Included on the list was Sechin.

BP’s commitment to Rosneft is a long-term one, Dudley said on a conference call with analysts, adding that he’ll be able to participate on the Russian company’s board. The CEO declined to speculate on the worst-case scenario if Rosneft were to be sanctioned, saying BP would comply will all relevant bans.

BP said earlier today it was too early to assess the impact of U.S. sanctions on Sechin.

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