BP's first-quarter results illustrate low oil and gas prices' negative impact on earnings. Adjusted earnings of $2.6 billion were down 8% from the fourth quarter and 62% from the year-ago quarter, largely because lower upstream earnings offset some improvement on the refining and marketing side. Lower production costs and higher downstream earnings are encouraging signs of improvement. However, challenges remain with still-low oil and gas prices plus weakened refined product demand as the global economy struggles.
On the upstream side, low oil and gas prices offset the benefits of a 2% production gain and 11% lower unit operating costs to result in earnings of $4.3 billion, down 57% from the year-ago period. Earnings were also 8% lower than the fourth quarter of 2008 because of lower pricing. However, we're encouraged by production gains at BP's Thunder Horse field, where new production from nearby Thunder Horse North wells came onstream. Production startups from TNK-BP's Urna and Ust-Tegus fields in Russia and offshore Angola discoveries are also of interest. Lower operating costs are another encouraging sign, suggesting more cost savings as oil field service costs decline.
On the refining and marketing side, BP reported earnings of $1.1 billion, down 13% from year-ago levels, but up significantly from fourth-quarter earnings of $0.4 billion. Much of this improvement came from US operations, where the return to full production at the Texas City refinery plus lower oil feedstock costs combined to boost earnings. However, scheduled maintenance and weaker March refining margins suggest weaker refining margins for the second quarter.
Catharina Milostan is a stock analyst with Morningstar.com.