Third Quarter 2005 Second Quarter 2006 Third Quarter 2006 Nine Months
$ million 2006 2005 %
6,463 7,266 6,231 Profit for the period* 19,120 18,656
(2,053) (1,148) 744 Inventory holding (gains) losses (762) (3,774)
4,410 6,118 6,975 Replacement cost profit 18,358 14,882 23
11.86 16.59 18.76 - per ordinary share (pence) 50.01 38.08
21.04 30.28 35.08 - per ordinary share (cents) 91.02 70.07 30
1.26 1.82 2.10 - per ADS (dollars) 5.46 4.20

BP's third quarter replacement cost profit was $6,975 million, compared with $4,410 million a year ago, an increase of 58%. For the nine months, replacement cost profit was $18,358 million compared with $14,882 million, up 23%.
The third quarter result included a net non-operating gain of $1,225 million compared with a net non-operating charge of $921 million in the third quarter of 2005. This includes significant gains on upstream asset disposals. For the nine months, the net non-operating gain was $1,214 million compared with a net non-operating charge of $1,201 million for the nine months of 2005.
Compared with a year ago, the third quarter trading environment reflected higher oil realizations and higher retail margins but lower refining margins and lower gas realizations.
Net cash provided by operating activities for the quarter and nine months was $5.1 billion and $23.2 billion compared with $6.4 billion and $22.5 billion a year ago.
The ratio of net debt to net debt plus equity was 16%.
The quarterly dividend, to be paid in December, is 9.825 cents per share ($0.5895 per ADS) compared with 8.925 cents per share a year ago. For the nine months, the dividend showed an increase of 10%. In sterling terms, the quarterly dividend is 5.241 pence per share, compared with 5.061 pence per share a year ago; for the nine months the increase was 8%. During the nine months, the company repurchased 1,024 million of its own shares at a cost of $12 billion.


BP Group Chief Executive, Lord Browne, said:
"The trading environment reflected higher oil realizations and retail margins but lower refining margins and gas realizations compared to a year ago. The third quarter result benefited from significant disposal gains and IFRS accounting effects. Results are being impacted by higher tax charges. The share buyback programme is continuing, with $3.5 billion of share repurchases during the quarter".

* Profit attributable to BP shareholders.
Summary Quarterly Results
Exploration and Production's third quarter result benefited from higher liquid realizations offset by lower gas realizations. In addition, it included higher production taxes and higher costs, reflecting the impacts of sector specific inflation, revenue investment and production growth. Furthermore, the result includes significant net gains on the sale of assets. BP's share of the TNK-BP result benefited from a gain of $892 million on the sale of its interest in the Urdmurtneft assets.
Compared with a year ago, the Refining and Marketing result, excluding Texas City, reflects strong operating performance. The lower result reflects lower refining margins, reduced supply optimization benefits and the impact of higher levels of refining turnaround activity. Retail margins improved strongly compared with a year ago. The result includes a significant gain related to IFRS fair value accounting effects.
In Gas, Power and Renewables, the lower third quarter result includes a charge for non-operating items compared with a gain in the same period last year. A significant reduction in the contribution from gas and power marketing and trading was partly offset by better operational performance in the natural gas liquids business and a lower charge related to IFRS fair value accounting.
Finance costs and Other finance expense was $117 million for the quarter compared with $181 million in the third quarter of 2005. Increases in market interest rates were more than offset by higher capitalized interest and a higher return on pension assets due to the increased market value of the pension asset base.
The consolidation adjustment, which removes the margin on sales between segments in respect of inventory at the period end, was a credit of $440 million in the third quarter. This primarily reflects changes in the amount of BP equity production held in Refining and Marketing segment inventories.
The effective tax rate on replacement cost profit of continuing operations was 40% versus 34% a year earlier, reflecting the retroactive impact of the increase in the North Sea tax rate, enacted in July 2006. The effect of this change on the Group's effective tax rate is partly mitigated by a sharp decline in prices around the end of the quarter.
Capital expenditure was $4.8 billion for the quarter, including $1 billion in respect of our investment in Rosneft. Disposal proceeds were $2.8 billion.

Net debt at the end of the quarter was $16.8 billion. The ratio of net debt to net debt plus equity was 16%.
During the third quarter, the company repurchased 299 million of its own shares, at a cost of $3.5 billion. Of these, 48 million shares were purchased for cancellation and the remainder are held in treasury. Additionally, shares to the value of $1.25 billion were issued to Alfa Group and Access Renova (AAR) being the last instalment of the deferred consideration for our investment in TNK-BP.

The commentaries above and following are based on replacement cost profit.
The financial information for 2005 has been restated to reflect the following, all with effect from 1 January 2006: (a) the transfer of three equity-accounted entities from Other businesses and corporate to Refining and Marketing following the sale of Innovene; (b) the transfer of certain mid-stream assets and activities from Refining and Marketing and Exploration and Production to Gas, Power and Renewables; (c) the transfer of Hydrogen for Transport activities from Gas, Power and Renewables to Refining and Marketing; and (d) the change in the basis of accounting for over-the-counter forward sale and purchase contracts for oil, natural gas, NGLs and power. See Note 2 for further details.
Outlook
BP Group Chief Executive, Lord Browne, concluded:

"World economic growth has been sustained. US economic growth appears to have slowed compared to the second quarter, but growth in Europe and Asia has been robust. The near-term global outlook is for slower but resilient growth.
"Crude oil prices averaged $69.60 per barrel (Dated Brent) in the third quarter of 2006, similar to the second quarter average and nearly $8 per barrel above the same period last year. After peaking above $78 per barrel in early August prices have declined and in early October were below $60 per barrel. Ample inventories, a perceived lessening of geopolitical tensions, and a lack of hurricane-related disruptions have contributed to the decline. OPEC members have announced an intent to reduce production.
"US natural gas prices averaged $6.58/mmbtu (Henry Hub first of month index) in the third quarter, $0.22/mmbtu below the second quarter average and nearly $2/mmbtu below the same period last year. Gas continued to trade at a discount to residual fuel oil. Domestic production growth retained its momentum, and consumption outside the power sector remained sluggish. Gas in storage at the end of September was 12% above the five-year average. Prices should be supported by seasonally rising winter demand.
"UK gas prices (NBP day-ahead) in the third quarter averaged 33.72 pence per therm, slightly below the second quarter but 15% above the same period last year. Since the peak in late July, prices have fallen significantly, facilitated by fewer North Sea maintenance closures, LNG imports, and most recently, the testing of the Langeled pipeline. Rough storage is full and import capacity has increased, easing most concerns over winter supply availability.
"The global average indicator refining margin fell to $8.40/bbl in the third quarter of 2006, down more than $4/bbl versus the second quarter and by a similar amount versus the third quarter last year. Margins were strong in July and August but fell away sharply during September on the end of the US gasoline season, limited hurricane activity and growing product inventory levels. So far in October, margins have averaged around $5/bbl, and should be underpinned in the near term by the autumn refinery turnaround programme and demand for distillates once colder weather arrives.
"Retail margins increased significantly in August and September due to a steady fall in the cost of product, leaving average retail margins for the third quarter above the previous two quarters. More stable raw material costs during October to date and an increase in competitive pressures suggest that marketing margins in the fourth quarter are likely to be weaker.
"The UK Government's announced increase in the North Sea supplemental tax rate has been enacted. This increase has two effects; first to create a one-time deferred tax charge and second to increase current tax to reflect the 2006 impact of the higher rate, which is retroactive to the start of the year. The full year aggregate effective tax rate is expected to be around 37%.
"Our strategy is unchanged. We continue to execute it with discipline and focus. Production for the year is expected to be around 3.950 mmboe/d, lower than in 2005 due principally to divestments and the impact of higher prices on entitlements under Production Sharing Contracts. Capital expenditure excluding acquisitions is expected to be around $16 billion for the year. Divestment proceeds are expected to be around $6 billion."