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NEW YORK and SAN ANTONIO, Tex. – BP cut its spending target as its first-quarter profit plunged 64 percent, according to a Bloomberg report. Net income dropped to $2.56 billion, or 14 cents a share, from $7.09 billion, or 37 cents, a year earlier. However, excluding inventory changes and one-time items, the London-based oil giants’ earnings beat analysts’ estimates.
"Earnings were a little ahead of analysts’ estimates and I think the dividend is safe," Timothy Guinness, chief executive officer of Guinness Atkinson Asset Management, told Bloomberg News.
BP cut its costs by more than $1 billion in the first quarter and said capital spending, excluding acquisitions and asset exchanges, will be less than $20 billion this year, down from an initial estimate of as much as $22 billion.
Bloomberg News reported that BP’s adjusted earnings were $2.58 billion. On that basis, profit was expected to be $2.2 billion, according to the median estimate of nine analysts surveyed by Bloomberg. Sales fell 47 percent to $48.1 billion. The quarterly dividend was raised 4 percent to 14 cents a share from the same period in 2008.
The average selling price for BP’s oil was about $41, down from $91 a barrel. BP sold its gas for about $3.63 per thousand cubic feet, from $5.88 last year.
Meanwhile, Valero Energy Corp. reported positive first-quarter 2009 net income of $309 million, or $0.59 per share. This compares to first quarter 2008 net income of $261 million, or $0.48 per share, which included a pre-tax benefit of $101 million, or $0.12 per share, for an insurance recovery related to the first quarter 2007 fire at the McKee refinery.
"We reported positive earnings despite weaker demand," said Bill Klesse, Valero’s chairman and CEO. "In fact, our first quarter 2009 earnings per share were 23 percent higher than the first quarter of 2008, and 64 percent higher if you exclude last year’s insurance recovery."
"In all our regions, gasoline margins were unseasonably strong and nearly double the level in the same quarter last year. Diesel and jet fuel margins were also good in the first quarter despite being down from last year’s high levels."
Also in the first quarter, Valero entered the ethanol business by agreeing to buy seven ethanol plants from VeraSun. "We closed on six of the plants in April, and we should close on the last plant soon," Klesse said.
"Acquiring these assets at a time of low ethanol margins enabled us to pay only 30 percent of replacement cost for some of the industry’s best ethanol plants. Since it is the government’s policy to include ethanol in motor fuel, this new business segment fits strategically with our business of producing clean, quality fuels for consumers. Looking forward, we expect ethanol demand to grow under the federal mandate and catch up with production capacity by 2010."
Klesse added that demand for refined products is down from last year due to the decline in economic activity and rising unemployment.
"However, better-than-expected gasoline fundamentals have supported margins so far this year," he said. "With pump prices around 40 percent lower than this time last year, gasoline demand could improve with the summer driving season. Recovery in demand for diesel and jet fuel could take longer, since those products are tied more closely to economic activity. As we have seen in the past, the refining business continues to be volatile and cyclical."
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