[A-List] BP watch: forecasts revised, again

["Michael Keaney" <michael.keaney@xxxxxx>]

Cut, cut and cut again at BP

Gold-plated performer loses lustre after dumping forecasts for third time

Terry Macalister
Wednesday October 30, 2002
The Guardian

BP, Britain's biggest company and one of its most reliable performers,
yesterday shocked the City by cutting its oil and gas output forecasts for
the third time in eight weeks.

The setback led to a fall in shares of 6% to 397p, their lowest for four
years, further denting the formerly gold-plated reputation of chief
executive Lord Browne.

The country's most profitable group also reported a 13% fall in third
quarter earnings to $2.3bn (£1.5bn) and downgraded its "self-help" targets
for cost-cutting from $1.4bn for the year to between $1.2bn and $1.4bn.

BP made clear it plans an attack on costs and underlined the threat to jobs
by confirming a big shake-up was on the way for Sullom Voe, Europe's biggest
oil and gas terminal.

Output targets have become a key indicator for oil groups - Shell's shares
were hammered last year when it admitted its forecasts were too optimistic.

Lord Browne made little attempt to evade responsibility for the failure,
admitting he had not left enough "headroom" for things to go wrong.

He blamed the latest blow to upstream production targets on hurricanes in
the Gulf of Mexico as well as operational difficulties in Alaska and the
North Sea.

The company said it had added to its own problems by reallocating too much
capital spending away from sustaining base production to longer term growth
projects where it saw better returns.

There had been no easy ways of bringing in new production through corporate
acquisitions, said BP, because higher crude prices had left companies fully
valued.

"The past nine months have not been happy ones for this part of our
operations. We had hoped to grow our oil and gas output by 5.5% for the
year, but we have failed to do so," Lord Browne explained.

"The net impact is that we now expect production growth of around 3% for
2002. This is deeply disappointing," he added. Long term targets were being
reassessed, he said, as he rejects acquisitions as a means of getting out of
trouble.

The oil major had promised to increase output by between 5.5% to 7.0%
between 2000 and 2005. It denied this ambitious goal had been shelved but
said it would cost an extra $1bn to get there. "The key question we are now
asking ourselves is: should we [spend that]?" An answer to that is promised
at a full-year financial results briefing in February, along with detailed
plans for cutting costs, including the possible sale of upstream assets.

Lord Browne said the problems had led to a focus on efficiency, and whether
the successive mergers with Amoco and Arco had led to too great a rise in
overheads.

"Field level costs are under control, but the question is the overheads we
carry above them. We have too much complexity and a little middle-aged
spread. We will address this," he said. Some cash would be saved through
lower performance bonuses, including his own, but Lord Browne declined to
comment on whether there would be a change in senior personnel. Over 550
people work at Sullom Voe in the Shetland Islands and part-owner BP admits
there must be savings.

Chief financial officer John Buchanan has already announced his retirement;
he will be replaced on November 21 by Byron Grote, the chief executive of BP
Chemicals.

Analysts described the production failures as "very disappointing", and
Merrill Lynch cut its recommendation from "buy" to "neutral".