BP investors looking for signs of turnaround

LONDON Mon Oct 24, 2011 7:01pm EDT

LONDON Oct 25 (Reuters) - BP Plc will seek to reassure investors on Tuesday that its turnaround following the Gulf of Mexico oil spill is on track.

The British oil company is expected to report a 9 percent fall in third quarter profits as the sale of oil fields to pay for the Macondo spill hits production and counters the positive effect of high oil prices.

Most rivals are predicted to post profit increases of over 30 percent, thanks to an almost 50 percent rise in Brent oil prices compared to the third quarter of 2010.

"BP is likely to have another difficult quarter," said Bernstein oil analyst Oswald Clint in a note to clients.

BP is expected to report replacement cost (RC) net income, excluding one-offs, of $5.03 billion for the last quarter, a 9 percent fall compared to the same period last year, according to a Reuters poll of nine analysts.

Replacement cost profit strips out unrealised gains and losses related to changes in the value of fuel inventories, and, as such, is comparable with net income under U.S. accounting rules.

As well as suffering the impact of a shrunken production base, BP's oil and gas output has been diminished by an overhaul of its facilities as the company seeks to improve safety.

Platforms are routinely shut to complete repairs or conduct maintenance but twice as many facilities had been closed in the third quarter as usual, a spokesman said.

Investors, who were receptive to previous Chief Executive Tony Hayward's promises to improve safety while cutting costs, have not reacted well to BP's recent operational weakness.

The company's shares have languished for a year and current CEO Bob Dudley has acknowledged being under pressure.

In an attempt to woo sceptics, BP has made a series of high profile announcements this year regarding new ventures and on Tuesday Dudley is expected to highlight growth opportunities at a press conference -- something the company only usually hosts at full year and half-year results.

However, the collapse of a much-vaunted $16 billion share swap and multi-billion dollar Arctic exploration deal with Kremlin-controlled Rosneft has dented investor confidence in the CEO's judgement.

On top of that BP still faces potential fines and damages claims worth tens of billions of dollars in the United States related to the Macondo disaster.

Nonetheless, analysts say an operational turnaround may have already begun:

"Our expectation is that the third quarter will prove the high point of maintenance and that operational performance will improve significantly in the fourth quarter," analysts at Citigroup said.

This may not be enough for investors, some of whom have called for a restructuring of the group.

Few analysts believe BP should follow the example of U.S. rivals Marathon Oil and ConocoPhillips which spun off their crude refining units -- BP has been selling refineries for years and the remaining assets are mostly integrated into upstream ventures or key to the group's lucrative oil trading operations.

Some disgruntled shareholders have called for a breakup of the whole group - selling BP's half-share of Russia's third largest oil producer, TNK-BP, and spinning off the U.S. assets, leaving a rump operation focussed on Angola, Azerbaijan and some other international fields.

Dudley has said he is looking at all options but BP insiders say no major strategic overhaul is imminent. The group usually provides shareholders with an extensive strategy update each year in February or early March.

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