High fuel prices see BP’s profits take a tumble

Profit from fuel tumbles by more than half.

Spill bill: the oil giant is still paying for the gulf of Mexico disaster

Tom Bawden1 May 2012

The profit BP makes from producing fuel tumbled by more than half in the first quarter as pilots, captains and drivers in the UK and across the world reacted to rising prices by significantly cutting back on their journeys.

As the UK pump price hovers close to record levels, BP’s fuel division, which makes petrol, diesel and other propellants for cars, ships and planes, reported a $924 million (£570 million) profit for the period, down from $2.2 billion a year earlier.

This contributed to a 13% decline in BP’s first-quarter profits, which sent its shares down 16p, or 4%, to 429.25p.

The FTSE 100 giant also suffered from a 6% decline in oil and gas production in the first quarter to 2.45 million barrels a day, as it continued to sell off assets to raise money to pay the billions of dollars it owes in fines and compensation for the Gulf of Mexico oil spill.

The declines in output and fuel profits outweighed the benefit of a strong oil price in the first quarter, which averaged $118.60 a barrel during the period, 12% higher than a year ago.

Despite the profit slump, BP paid a dividend of 8p a share for the period — the same level as for the previous three months and 14% higher than a year earlier.

BP is keen to grow its dividend after reinstating it 15 months ago following a six-month suspension as the company struggled with the financial fall-out of the Gulf of Mexico oil spill.

However, even with the recent hikes, BP’s dividend is barely half what it was at its peak before the spill in April 2010, when the group’s pay-outs accounted for £1 in every £6 of dividends paid to UK pension funds.

Although BP’s main production business benefited from the high oil prices, profit margins at its fuel operation suffered because it was unable to pass on the full cost of the increase to customers.

This is partly because any price rise is likely to reduce demand even further, especially when customers are already strapped for cash, but also because the emergence of so-called super-refineries in Asia have increased competition.