FT.com, 9/1/2008

Analysts have begun to cut their forecasts for BP’s fourth quarter profits, causing the share price to plummet.

The steep fall came after BP’s investor relations department started talking about factors that could have affected its results, to be released on February 5.

Research notes appeared Wednesday from Merrill Lynch and Credit Suisse cutting their fourth quarter earnings forecasts by about 25 per cent.

BP shares fell sharply as reports of the notes swept through the market, dropping 5 per cent at one point, although they recovered to close down 3.6 per cent at 610½p.

BP said it had “no intention to selectively disclose” information or to change its guidance, and it had not given any information that was not publicly available.

But it said its investor relations team had been drawing attention to information in the public domain, including the regular trading conditions update published every Monday on its website.

The trading update includes information such as oil and gas prices in BP’s main markets and details of the margins in its refineries.

Those margins fell at the end of last year, from a global average of $8.05 per barrel in the third quarter to $5.68 per barrel in the fourth quarter.

A higher tax charge is one factor cited by the Merrill Lynch and Credit Suisse analysts as a reason for taking a more gloomy view. The profit made by BP on the increase of the value of the oil in its inventories creates a tax liability that will hit the fourth quarter.

A higher oil price also means that BP loses a larger slice of its production to the governments of countries where it operates under production-sharing agreements. That will hit its reserves, creating a higher charge for depreciation.

BP is also suffering from a rise in depreciation, depletion and amortisation costs in the fourth quarter because the new projects that started in the period began to incur those costs.

Four large projects came on stream towards the end of last year: Greater Plutonio in Angola, Atlantis in the Gulf of Mexico, Mango in Trinidad and the subsea pumps installed at the King field in the Gulf of Mexico.

Merrill Lynch and Credit Suisse both rated the shares as “neutral” in their notes.

The Credit Suisse analysts wrote: “We are concerned that the [full-year] reporting season for big oil will continue to deliver a message of higher capex/weaker volumes and weak reserve replacement/rising depreciation due to [production-sharing contract] impact.”

Copyright The Financial Times Limited 2008