THE WALL STREET JOURNAL: BP Sees Profit Cut Over $700 Million By Hurricanes: "Exxon Mobil and No. 3 Royal Dutch Shell PLC haven't detailed the hurricanes' financial impact.": Wednesday 5 October 2005

LONDON -- BP PLC said it expects a third-quarter profit hit of more than $700 million from Hurricanes Katrina and Rita, and the company expects full-year hydrocarbon production to fall short of guidance largely because of the Gulf of Mexico storms.

BP, the world's second-largest publicly traded oil company by market capitalization after Exxon Mobil Corp., estimated that the two storms will lower third-quarter replacement-cost profit before interest and tax -- a closely watched measure that strips out the impact of rises and falls in the value of product inventory -- by more than $700 million. The company specifically blamed lost production, reduced refining operations, lower marketing margins for some petroleum products and the cost of repairs, all related to the storms.

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The blow, while large, comes at a time of banner earnings for BP and its peers amid soaring energy prices. For the second quarter, BP reported replacement-cost profit before interest and tax of $7.53 billion, up from $5.83 billion a year earlier. Its second-quarter net income was $5.59 billion, or 26 cents a share.

The warning was the latest attempt by a major oil company to quantify the financial fallout from the two hurricanes. Last week, Chevron Corp. said it has lost more than $350 million in third-quarter profit and more than 75,000 barrels of oil equivalent of production from Katrina and other hurricanes. Rita's impact wasn't included in that estimate. Exxon Mobil and No. 3 Royal Dutch Shell PLC haven't detailed the hurricanes' financial impact.

The extent of the storm's damage to BP's profits surprised some market watchers. Goldman Sachs Group Inc.'s equity analysts cut BP's full-year earnings-per-share guidance 7%. In London trading yesterday, BP shares fell 2.7% to 657.27 pence ($11.53).

Super-high hydrocarbon prices and refining margins, however, are likely to cushion hurricane-related losses. Earlier this year, BP issued a set of estimates of how changes in commodity prices might affect profit. According to these outlines, a change of $1 a barrel in the price of European benchmark crude correlates roughly to $500 million in full-year pretax profit.

Since the third quarter of last year, European oil prices have risen more than $20 a barrel, implying a full-year pretax windfall of $10 billion if prices hold. BP, however, said its estimates are proving much less accurate amid increasing price volatility. The entire oil industry has been hit with sharply rising oil-field costs.

Still, "the macro environment is better than it has ever been," Goldman analysts wrote in a note published after BP's update. Goldman's reduced earnings estimate still implies quarterly earnings-per-share rose more than 50% from a year earlier, they wrote. Goldman holds an "in-line/attractive" rating on BP stock. The firm does investment-banking business with BP and actively trades its shares.

BP said it will book a further $100 million in unexpected costs in the quarter to repair its Thunder Horse offshore-production facility, which was damaged by a separate hurricane in the Gulf of Mexico earlier in the summer.

BP said Katrina and Rita cost the company an average 145,000 barrels a day of oil-and-gas production in the quarter. A spokeswoman said the company no longer expects to meet full-year production guidance of an average 4.1 million to 4.2 million barrels of oil-equivalent a day.

Write to Chip Cummins at chip.cummins@wsj.com