BP eyes big profit for Second Quarter
No. 2 oil firm says production rose 17% from a year earlier, sees gains in refining margins.
BP hinted at a bumper second-quarter profit Friday, highlighting the appeal of oil firms for investors as the sector recovers from an earlier reserves scandal at Shell.
Oil prices have soared amid continuing tension in the Middle East, strong U.S. and Chinese demand and low inventories, and gas prices have also risen sharply.
BP, the world's second-largest oil group, said second-quarter production was set to rise 17 percent from a year ago as its investment in Russia began to pay off, although there were some signs of retail margin pressures.
"The cash that companies like BP are getting at this level is huge," said Cheuvreux analyst Peter Hitchens.
BP said refining indicator margins reached new highs during the quarter, with petrochemical margins and sales volumes rising from the first quarter.
However, BP said margin gains from its refineries were expected to be significantly below the industry average, due partly to higher marketing costs to promote new fuel products in Germany and Austria. BP shares were flat in morning trade, edging up 0.1 percent to 485 1/2 pence.
Many investors have preferred BP to Shell this year after the Anglo-Dutch group had to dramatically cut its oil and gas reserves.
"BP seems to be getting it right, whereas Shell seems to be getting it wrong," said Cavendish Asset Management fund manager Paul Mumford.
In April, BP reported record first-quarter net profit of $4.72 billion, helped by the sale of stakes in two Chinese oil firms and by its buoyant trading environment.
Although second-quarter production was seen down 2 percent from the first quarter due to some unplanned shutdowns, it would have benefited from the fact that oil and gas prices continued to rise.
BP has also reaped rewards from its joint venture with Russian oil firm TNK, allowing the British company to tap Russia's vast oil reserves to offset slower growth elsewhere.
Some traders said the company's production was slightly below expectations.
However, they added that BP remained an attractive stock due to strong cash flow, high dividend yield and an ongoing share buyback program. The company said Friday that it aimed to buy back more shares in the coming weeks.
"There were some elements of their trading update that were a little bit disappointing, but we have the comfort of knowing that the surplus cash flow arising from high oil prices will be returned to shareholders," said Ivor Pether, fund manager at Royal London Asset Management.
BP shares have gained about 13 percent since the start of 2004.
Shell shares have outperformed BP in the last month as a decision to start a share-buyback program similar to BP's and a move by a new management team to improve corporate governance standards have won over some investors.
However, Canada Life investor David Bradbury said he still preferred BP to Shell, because BP had a better management team.
Cheuvreux analyst Hitchens, who has an "outperform" rating on BP, said the overall oil sector remained an appealing one for investors.
"BP's statement highlights the fact that we should see very good profits from the sector during this quarter," he said.
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