BP reported the biggest-ever quarterly profit for a British company but warned of the risks of doing business in Russia and promised to fight to defend its interests there.
Soaring oil and gas prices helped push underlying net profit up 56 per cent to $8.6bn (£4.3bn) in the second quarter.
Tony Hayward, the chief executive who took over last year, has been trying to turn the company round after years of disappointing performance and yesterday’s figures showed signs that his efforts may be bearing fruit.
However, BP’s shares have been under pressure because of its problems in Russia. The group is facing a bitter battle for control of TNK-BP, its joint venture owned 50-50 with theâ€‰Alfa-Access-Renova group of Russian billionaires.
The shares slipped again yesterday, in spite of the better-than-expected results, and closed down 12¾p at 506¾p.
Mr Hayward said BP would “defend robustly” its rights under the shareholder agreement setting up TNK-BP and threatened legal action against AAR.
He advised other international companies looking to do business in Russia to “tread with caution”, reinforcing BP’s message that the pressure on TNK-BP from AAR and Russian authorities would damage the confidence of international investors.
Mr Hayward also said Robert Dudley, chief executive of TNK-BP, could remain at the head of the company while outside Russia only for a matter of months.
Mr Dudley left Moscow last week following AAR’s sustained campaign to remove him.
He is still running TNK-BP from an office somewhere in central Europe but Mr Hayward’s comments showed that unless Mr Dudley returns to Russia fairly soon, BP will be forced to bow to AAR’s demand that he be replaced.
BP’s quarterly profit will remain the UK’s biggest ever if, as expected, Royal Dutch Shell reports an underlying net profit of about $8.3bn tomorrow.
Production for the second quarter at BP was broadly flat compared with the same period in 2007 — at 3.83m barrels of oil equivalent per day. However, excluding the effect of production sharing contracts, which give more oil to the countries where BP operates as the price rises, underlying production was up 6 per cent.
Profits at the refining division collapsed from $2.7bn to $539m as margins were squeezed, especially in the US.
Vivienne Cox, the head of BP’s alternative energy business, including biofuels, wind and solar, said BP had talked to possible strategic partners about taking a stake and was reviewing options to “expose the value” of the unit, but had “no plans” to float it off.
BP said it would pay a dividend of 14 cents a share for the quarter, up 29 per cent from the 10.825 cents paid in the equivalent period of 2007. It has shifted away from share buy-backs and towards dividends as a way to distribute cash.
Colin Smith, analyst at Dresdner Kleinwort, said BP had a superior short-term growth outlook than Shell.
“The bears would say BP is not investing as much for the future, but it does not necessarily need to. BP is doing well right now.”
Copyright The Financial Times Limited 2008