BP Plc expects Hurricanes Katrina and Rita to cost it over $700 million in repair bills and lost profits and put its 2005 production goal out of reach, the world's number two oil firm by market value said yesterday.
London-based BP said in a statement third-quarter oil and gas output would average about 3.8 million barrels of oil equivalent per day (boepd), compared with 4.1 million boepd in the second quarter and 3.9 million boepd in the third quarter of 2004.
The result was around 200,000 boepd lower than forecasts from Goldman Sachs and Citigroup, among the few analysts that were prepared to predict BP's storm-hit third-quarter production.
Rita and Katrina cost BP 145,000 boepd in the quarter. The worse-than-expected figure raised fears about the impact of the storms on rivals such as Royal Dutch Shell Plc.
BP's loss eclipses the 20,000 boepd third-quarter production hit revealed on Monday by ConocoPhillips, the only other oil major to report third-quarter storm impact so far.
The statement weighed on BP's stock, which traded 1.3 per cent lower at 665 pence at 1129 GMT, compared with a 1.0 per cent drop in the DJ Stoxx European Oil and Gas Index.
Some analysts said they planned to lower their forecasts for third-quarter earnings on the news.
"We will have to lower our current $6.7 billion Q3 estimate to reflect the lower upstream volumes, US gas price realisation and marketing result," Citibank said in a research note.
BP also lost output to planned maintenance, mainly in the North Sea, and higher prices hit its entitlement from production-sharing contracts with oil-producing nations.
The loss of Gulf of Mexico and North Sea barrels was especially costly because these are high-margin producing areas.
BP said the impact of the hurricanes, plus higher prices on production-sharing contracts, meant it was unlikely to meet its full-year production goal of 4.1-4.2 million boepd.
While analysts said this was a disappointment, they added higher oil prices meant that the past three months are likely to have been among the most profitable in BP's history.
BP added that it would incur $100 million of additional costs to secure and repair its massive Thunder Horse platform in the Gulf of Mexico, which was left listing after the passage of Hurricane Dennis.
BP indicated its refining business would have another buoyant quarter. Margins were up around $2 a barrel, although this was only half the industry-wide rise in margins, BP said.
The higher refining margins were partly driven by shutdowns of refineries across the US Gulf, including BP's Texas City plant.
The Texas City shutdown meant lower volumes for BP, but analysts expect higher margins worldwide will more than compensate for this.
The continuing refinery shutdown and production drop will also weigh on fourth-quarter earnings, analysts said, while the extent of the Hurricanes' impact led to concerns that other oil firms would also reveal worse-than-expected figures.
Angus McPhail, oil analyst at ING noted that Shell had more production shut down in the Gulf of Mexico than BP.
"It doesn't good look for them (Shell)," Mr McPhail said.
BP's third-quarter earnings will benefit from a sharp rise in average oil prices in the quarter, compared to the second quarter, though the company said its own realisations lagged the $10-a-barrel rise in WTI and Brent crude. Its US gas realisations substantially lagged markers.
Investors will also be disappointed, if not altogether surprised, that margins fell at BP's olefins and derivatives business - the second consecutive quarter-on-quarter drop - due to rising feedstock costs.
BP plans to float most of these plastics operations on the New York Stock Exchange later this year, and the margin easing could hit BP's ability to get a good price.
Some bankers had predicted buyers would be deterred by concerns that the industry had passed the peak in its earnings cycle.
BP said the expected $700 million hurricane hit to third-quarter replacement cost profit before interest and tax reflected damage repair and clean-up costs, lost oil and gas production and reduced refinery runs.