Update: BP ponders increasing 2011 capex budget

2nd Nov 2010 07:09

Beleaguered oil giant BP comfortably beat third quarter profit forecasts and is considering upping the amount of capital expenditure it has budgeted for next year.The market had been expecting underlying net income on a replacement cost basis to be around $4.5-$4.6bn, but after what it termed a "strong operating performance" BP boosted profits by 18% from a year earlier to $5.5bn.Headline replacement cost profit for the third quarter was $1.8bn, compared with a loss of $17.0bn in the previous quarter and a profit of $5.0bn in the third quarter of 2009.Total revenues and other income climbed to $74.65bn from $67.86bn, but was down from the $75.87bn seen in the second quarter.Earnings per share eased to 9.83 cents from 26.59 cents in the third quarter of last year, but represented a sharp turnaround from a loss per share of 90.35 cents in the preceding quarter, when the company's earnings were dented by the $32.2bn provision to cover Gulf of Mexico oil spill crisis. As expected, the company had to take an additional hit relating to the oil spill in this quarter. The additional pre-tax charge of $7.7bn this time round was due principally to higher spill response costs, as the relief well that finally sealed the Macondo well in September took longer to complete than anticipated.Costs incurred relating to the Macondo well incident were $8.7bn in the third quarter and $11.6bn for the first nine months of 2010. This includes payments of $0.8bn during the third quarter from the escrow account which was formally established in August. Costs incurred exclude payments by BP into the escrow account of $3bn in the third quarter.The company wants partners in the Gulf of Mexico well to share some of the financial hit. It's sent a bill for $1.9bn to Mitsui & Co, which has a 10% stake in Macondo. But the Japanese aren't in any hurry to pay given the ongoing investigations into the incident that killed 11 workers.Total capital expenditure for the third quarter was $6.7bn while organic capital expenditure was $4.7bn. Organic capital expenditure for 2010 is expected to be around $18bn. "Given the strength of our underlying cash flows and the investment opportunities available to us, our 2011 capital expenditure is currently under review and is expected to exceed the $18bn previously indicated," the company said.Net debt at the end of September was $26.4bn, barely changed from $26.3bn a year earlier, though the company has raised $14bn through disposals since July of this year.The group intends to reduce net debt to $10-15bn by the end of 2011.There were hopes in some quarters that the company would announce a return to dividend payments but the company's statement merely reiterated previous guidance that the board would consider the dividend situation at the time of the full year results in February 2011.