BP shares tumble 4% as profits fall below forecasts

SHARES in BP slumped yesterday, wiping more than £4 billion off its value, after the oil giant posted profits hundreds of millions of dollars short of the mark.

• Chief executive Tony Hayward praised BP's performance

Hit by a collapse in margins at its fuel refinery business, BP – Britain's biggest company – reported a profit for the final three months of 2009 of $3.45 billion (2.2bn), well below City forecasts.

Profits in the period were a third higher than a year earlier after oil prices surged to some $80 in December. However, for 2009 as a whole, earnings tumbled 45 per cent to $13.96bn.

Shares in the company fell almost 4 per cent to 572p as BP warned that it expected a "slow and gradual" economic recovery in North America and Europe.

It ended the session as the worst performing share in the FTSE-100, with some 4.2bn wiped off the company's value.

Chief executive Tony Hayward said margins at the group's refinery business had fallen by about 70 per cent because of oversupply, in particular in North America. In the Atlantic basin alone, BP estimates that the oversupply was several million barrels a day.

Despite the disappointing fourth-quarter, Hayward, who became chief executive in early 2007, said the performance of the company had been "very good" after extensive restructuring.

"These results provide the clearest demonstration of the progress we have made and the momentum we have established in growing our business and making it more efficient," he said.

BP has carried out a major cost cutting drive, stripping some 7,500 staff from its workforce over the past three years and targeting billions in savings from its supply chain. The efficiency drive allowed the group to maintain its final dividend at 14p a share, despite a fall in the price it received for its fuel compared to 2008.

Icap and ING said BP's profits and shares could continue to outperform rivals in 2010 and that the dip in the share price represented a buying opportunity.

BP warned that further savings from the supply chain would be sought. While major internal restructuring was not planned for the next few years, Hayward believed there was a "significant opportunity" to reduce the costs paid to suppliers.

While he would not put a target on the savings, he said the company would be seeking to improve its purchasing through more efficient contracts as well as taking advantage of cost deflation.

"There's quite a lot more to go on that agenda," Hayward told reporters yesterday.

The group's operational performance was also strong, with production of just over four million barrels of oil a day, a 4 per cent increase over 2009.

Hayward said BP had benefited from a lack of hurricanes and that the long-term growth target of 1-2 per cent a year was unchanged.

BP also found new hydrocarbon reserves in the year amounting to 129 per cent of the gas and oil it sold in 2009, the 17th consecutive year that reserve replacement exceeded its output.

Royal Dutch Shell, Europe's largest oil company, presents its 2010 results tomorrow.