Second Quarter 2005 First Quarter 2006 Second Quarter 2006
First Half $ million 2006 2005 %
5,591 5,623 7,266 Profit for the period* 12,889 12,193
(610) (358) (1,148) Inventory holding (gains) losses (1,506) (1,721)
4,981 5,265 6,118 Replacement cost profit 11,383 10,427 9
12.67 14.66 16.59 - per ordinary share (pence) 31.25 26.22
23.42 25.66 30.28 - per ordinary share (cents) 55.94 49.03 14
1.40 1.54 1.82 - per ADS (dollars) 3.36 2.94

BP's second quarter replacement cost profit was $6,118 million, compared with $4,981 million a year ago, an increase of 23%. For the half year, replacement cost profit was $11,383 million compared with $10,472 million, up 9%.
The second quarter result included a net non-operating gain of $6 million compared with a net non-operating charge of $822 million in the second quarter of 2005. For the half year, the net non-operating charge was $11 million compared with a net non-operating charge of $280 million for the first half of 2005.
The second quarter trading environment was generally stronger than a year ago with higher oil and gas realizations and higher refining margins but with lower overall marketing margins.
Net cash provided by operating activities for the quarter and half year was $9.1 billion and $18.1 billion compared with $6.7 billion and $16.1 billion a year ago.
The ratio of net debt to net debt plus equity was 15%.
The quarterly dividend, to be paid in September, is 9.825 cents per share ($0.5895 per ADS) compared with 8.925 cents per share a year ago. For the half year, the dividend showed an increase of 10%. In sterling terms, the quarterly dividend is 5.324 pence per share, compared with 5.119 pence per share a year ago; for the half year the increase was 11%. During the first half, the company repurchased 725 million of its own shares at a cost of $8.5 billion.

BP Group Chief Executive, Lord Browne, said:
“BP’s second quarter result reflected good overall operating performance and continuing strong upstream and refining margins. The Texas City refinery is now running at 200 mb/d and further units will be brought onstream across the balance of 2006. Our actions to control costs are on track. Results are being impacted by higher tax charges. Strong cash generation continues to support shareholder distributions through dividends and buybacks”.

*Profit attributable to BP shareholders.

Outlook
BP Group Chief Executive, Lord Browne, concluded:
"World economic growth has been sustained. US economic growth appears to have slowed compared to the first quarter, but Europe appears to have grown faster; growth in other regions has been sustained. The near-term global outlook appears resilient.

"Crude oil prices averaged $69.59 per barrel (Dated Brent) in the second quarter of 2006, an increase of nearly $8 per barrel from the first quarter and $18 per barrel above the same period last year. Prices rose in face of heightened geopolitical concerns. Demand is growing strongly in China and the Middle East, offsetting weakness in the US and Europe. Ample inventories and increased spare OPEC production capacity have failed to stem the increase. Oil prices are expected to remain strong.

"US natural gas prices averaged $6.80/mmbtu (Henry Hub First of Month Index) in the second quarter, $2.21/mmbtu below the first quarter. Gas prices traded below parity with residual fuel oil during the quarter. Onshore gas supplies and net imports have grown; recovery of hurricane-affected production has continued. Working gas inventories at the end of June were 29% above the five-year average. US gas prices have fallen further so far in the third quarter.

"UK gas prices (NBP day-ahead) fell in the second quarter to average 34.6 pence per therm, compared to 70 pence per therm in the first quarter, but 15% higher than in the second quarter of 2005. However, European long-term contract prices, which are indexed to oil prices, increased by more over the same period. As a result, UK spot prices traded at a discount to European contract prices in the second quarter 2006, compared to a small premium during the second quarter of 2005. The Rough storage facility has re-opened and inventories are expected to reach normal levels by October, but concerns over winter supply have led the NBP futures to exceed 80 pence per therm.
"Global average refining margins rose sharply to $12.59/bbl in the second quarter of 2006 compared with $6.28/bbl in the first quarter. A heavy US refinery maintenance programme extended into the second quarter and coincided with the switch from MTBE to ethanol for reformulated gasolines. Margins increased strongly to encourage sufficient product imports from abroad. So far in July, margins have remained near the second quarter average as the US driving season approaches its peak and as the transition to ULSD gathers pace. Both of these developments are likely to support the refining environment over the near term.

"Although retail margins deteriorated in April they recovered in May and June on the back of movements in the cost of product. This has resulted in overall second quarter retail margins being slightly ahead of the first quarter. So far in July, a further rise in wholesale gasoline and crude prices is evident; marketing margins are therefore expected to remain volatile.

"The UK Government’s announced increase in the North Sea supplemental tax rate has been enacted. This increase will have two effects; first to create a one-time deferred tax charge and second to increase current tax to reflect the 2006 impact of the proposed higher rate, which is retroactive to the start of the year. The full year aggregate effective tax rate is expected to be around 39%.
"We have 16 major projects currently under development scheduled to start up in the 2007-9 period, and a further 11 under appraisal. Beyond 2009 we now see a further 26 major projects which would be expected to develop around 8 billion boe. These projects support our expectation that we will move 11 billion boe from non-proven resources to proved reserves between now and 2010, underpinning our continued renewal beyond this decade.

"We continue to expect full year 2006 production to be consistent with the guidance of 4.1 to 4.2 mboe/d given in February, after adjusting for divestments and the impact of higher prices on entitlements under production sharing contracts. On the basis of divestments announced in 2006 to date, and assuming that oil prices remain at around $70/barrel, these adjustments are expected to amount to around 65,000 boe/d and 45,000 boe/d respectively this year.

"Our strategy is unchanged. We continue to execute it with discipline and focus. Capital expenditure excluding acquisitions is expected to be between $15.5 billion and $16 billion for the year, greater than previously estimated as a result of higher sector-specific inflation, driven by high oil prices. Divestment proceeds are also expected to be significantly higher than previously estimated at more than $6 billion."