It's Official: BP Means Better Production

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With a decidedly big push from escalating crude oil prices, London-based BP (NYSE: BP) has raised its quarterly profits, and not just by a little bit.

The company's net profit for the quarter ended March 2008 was $7.6 billion, or 63% above the first quarter of 2007. Its replacement profit, which excludes the value of crude inventories and thereby is considered a key measure of an oil and gas producer's financial and operating success, jumped by an impressive 48% year over year in the quarter.

BP's oil and gas production for the quarter was about flat at 3.91 million barrels of oil equivalent (boe) a day. But if you back out the dampening effect of reduced entitlements in production sharing agreements, the company's production rose by 5% from that of the first quarter of 2007, an unusual accomplishment among big oil companies these days. The key to the increase was a number of new projects that began in the final quarter of 2007.

BP has suffered a number of setbacks in recent years, including a disastrous refinery explosion that killed 15 at Texas City, an oil pipeline leak in Alaska, and a fire and protracted outage at its Whiting, Indiana, refinery. At the same time, its longtime CEO was forced to resign for personal reasons last year.

But Texas City and Whiting are returning to normalcy, although total refinery throughput was reduced during the quarter by maintenance at another major facility. Beyond that, however, a 52% reduction in refining margins in the quarter was more than offset by the jump in both oil and natural gas prices.

BP was joined by its European peer, Royal Dutch Shell (NYSE: RDS-A) (NYSE: RDS-B), which reported a similarly strong quarter. Also checking in with solid results on the basis of higher crude prices were ConocoPhillips (NYSE: COP) and Occidental. It's difficult to imagine how ExxonMobil (NYSE: XOM) and Chevron (NYSE: CVX) could fail to follow suit when they report later this week.

For my money, BP has become interesting again. Most of the company's difficulties appear to be behind it, and CEO Tony Hayward, who replaced John Browne when he resigned in mid-2007, appears to have a firm hand on the company's tiller. Given those factors, it just might be a big oil diamond that's being pulled from the rough.

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