BP Acknowledges Turbulent Times; Braces For Sluggish Recovery

CP 50 company surpasses financial targets.

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Despite an unstable economy, BP delivered promising second-quarter numbers including a 4% jump in daily production to more than 4 million barrels of oil and replacement cost profits of $3.140 billion – up over 30% on the first quarter.  (According to the Web site Moneyterms, "Oil companies often disclose replacement cost profit. This is because the oil price is so volatile, they hold large stocks, and the amount stocked also varies significantly from one reporting period to period.")

“We are in turbulent times, volatile and uncertain. But we continue to steer a steady course through choppy waters," said Chief Executive Tony Hayward in a press release announcing the company financials. "Two years ago we set out to restore our ability to compete more effectively with our rivals in the sector."

We are in turbulent times, volatile and uncertain. But we continue to steer a steady course through choppy waters.

– Tony Hayward, BP chief executive

According to Hayward, the progress was bolstered by a simplified organization, deepening expertise at the operational level and unrelenting focus on operational safety and integrity. Cash costs had been reduced by more than $2 billion in the first half of the year, versus the same period last year.

"We have already surpassed the target we set ourselves at the beginning of this year for cash costs but we are by no means complacent. We will continue to push efficiencies into the group and make sure every dollar counts. Based on this strong progress, we can expect cash costs for the full year to be down by more than $3 billion compared with 2008."

Hayward said the latest economic data suggested the global economy could stabilize this summer but that any recovery, whenever it comes, would likely be sluggish: "The overall picture is of energy demand now stabilizing following significant falls in the first half of the year. We see little evidence of any growth in demand and expect the recovery to be long and drawn out."

Indeed, BP and Irving Oil recently announced they will not be moving forward with a proposed second refinery in Saint John, New Brunswick, Canada, as a result of global economic and industry conditions.

A joint technical and commercial feasibility study that the two companies have been conducting over the last 18 months concluded that the project was not viable at a time of global economic recession and dampening forecasts for petroleum product demand in North America.

While petroleum product demand takes a hit, BP is moving forward with alternative energy initiatives. In fact, it has entered a joint development agreement with Martek Biosciences to work on the production of microbial oils for biofuels applications. The partnership aims to advance the development of a step-change technology for the conversion of sugars into biodiesel.

Under the terms of the multi-year agreement, Martek and BP will work together to establish proof of concept for large-scale, cost effective microbial biodiesel production through fermentation.

“BP is very pleased to be entering this important partnership with Martek,” says Philip New, CEO BP Biofuels. “As an alternative to conventional vegetable oils, we believe sugar to diesel technology has the potential to deliver economic, sustainable and scaleable biodiesel supplies. In partnering with Martek, we combine the world’s leading know-how in microbial lipid production with our expertise in fuels markets and applications, and our more recent experience in biofuels production and commercialization.”

For more information, visit BP's Alternative Energy site http://www.bp.com/modularhome.do?categoryId=7040&contentId=7051376  or Martek's Web site: http://www.martek.com/.

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