By KRISTEN HAYS HOUSTON CHRONICLE
Oct. 28, 2008, 11:00PM
BPs Texas City refinery should reach full capacity and profitability by years end for the first time since the company shut it down more than three years ago for a $1 billion overhaul, executives said Tuesday.
They discussed the status of the refinery and other U.S. operations in reporting an 83?percent surge in its third-quarter profit thanks to lofty oil and natural gas prices. However, prices have fallen from summer highs amid growing global economic woes.
BP was the second of the worlds largest publicly traded oil majors to unveil quarterly results. Last week ConocoPhillips announced a 41 percent increase in earnings. Exxon Mobil Corp. and Royal Dutch Shell are scheduled to release results Thursday, followed by Chevron on Friday.
BP Chief Executive Tony Hayward said that while oil prices could sink further as the world enters a slowdown, the London-based oil giant is poised to acquire more reserves on the cheap.
Our balance sheet is strong, and we have committed less of our portfolio to high-cost options like tar sands and gas conversion than some of our peers, Hayward said. Royal Dutch Shell has projects in Canadas oil sands and a gas-to-liquids plant in Qatar.
We think the current turmoil may, in fact, create opportunities for us, and we will look at those very closely, Hayward said in a statement.
BP shut down the Texas City plant in September 2005, shortly after Hurricane Rita roared ashore and six months after 15 people died and many more were hurt when a unit exploded after a series of safety failures.
The last unit left off line is expected to restart during the fourth quarter, bringing the plant back to full economic capacity before this years end, Chief Financial Officer Byron Grote told analysts Tuesday.
Before the shutdown, the refinery could earn $100 million a month when running at full tilt.
It was not in the black yet in the third quarter, but we would hope that would change in the not-too-distant future, investor relations chief Fergus MacLeod said.
In the quarter, BP earned $8 billion, up from $4.4 billion in the third quarter of 2007. Revenue rose 45 percent to $103.2 billion from $71.3 billion.
Oil and gas production reached 3.66 million barrels of oil equivalent per day, up slightly from 3.65 million barrels a day in the year-ago period.
However, analysts were more interested in how the company will readjust to double-digit oil. Tuesdays results represent a glimpse back to a $100/barrel world, Citigroup analyst Mark Bloomfield said in a note to investors.
Grote told analysts that BP expects its capital spending in 2008 to match the $21 billion to $22 billion earmarked for this year, though it can shrink if oil prices remain at current levels or keep falling. In trading Tuesday on the New York Mercantile Exchange, crude closed down 49 cents at $62.73, less than half of its all-time high closing price of $145.29 on July 3.
What is certain is, if prices were to stay at low levels, we will be facing a different type of cost structure as 2009 wears on. We can slow down if we so desire, and on occasions in the past we have done so, he said.
With credit as difficult to secure for these relatively small buyers, its going to extend out longer than we originally anticipated, he said of the divestiture announced a year ago. We remain confident about the ultimate completion of these sales.
A buyers market
Analysts say the crunch has spawned a buyers market for assets that smaller, somewhat strapped producers need to sell to fund their operations.
Sanford C. Bernstein & Co. analyst Neil McMahon even noted during BPs earnings conference call Tuesday that he was surprised the company didnt renegotiate recent deals to buy natural gas shale assets from Oklahoma City-based Chesapeake Energy.
Chesapeake, the largest U.S. natural gas producer, sold shale assets to BP in July and August for a combined $3.7 billion. The company also has fended off investor concerns about its financial strength amid the crisis.
Returning to profitability
Grote said BP tries to behave as it expects other companies to behave when doing deals, and we continue to find these deals extremely attractive. Were happy with it.
In addition to the problems at Texas City, BP in 2006 struggled with an oil leak at a pipeline in Alaska and three years of delays in bringing its Thunder Horse platform in the Gulf of Mexico on line.
Thunder Horse, which has the most capacity of any Gulf structure at 250,000 barrels of oil per day, started pumping from a single well in June. A second well since began pumping, and two more are expected to follow suit by year-end.
Grote said the first two wells are producing more than 100,000 barrels a day.