BP has posted a sharp year-on-year increase in fourth quarter profits and a 4% rise in its oil and gas production in 2009 – well ahead of its forecast long-term average growth rate of 1-2% – reflecting a ramp-up and start-up of major new projects, including the first full year of production from the Thunder Horse field in the US Gulf of Mexico.

However, 2009 was a difficult year for BP as rising demand for oil in non-OECD countries failed to offset lower levels of consumption elsewhere. Oil prices began the year at $36.55 per barrel and recovered to $77.67 per barrel in December, and refining margins and gas prices fell sharply, noted BP chief executive Tony Hayward.

The company’s underlying replacement cost profit for Q4/09, before non-operating items and fair value accounting effects, came in at $4.4bn - 70% up on the same period in 2008. Full year replacement cost profit for 2009, however, fell 45% to $14bn on weaker markets, lower average oil and gas prices and depressed refining margins. BP’s reserve replacement ratio for the year was 129% - making 2009 the 17th consecutive year of reserve replacement of at least 100%.

Upstream production was “very strong” in 2009, while the CEO predicted 2010 production to be slightly lower. BP’s refineries, he added, were largely restored to their full operating capability, delivering their highest level of availability since 2004.

Cash costs for 2009 were more than $4 billion lower than for 2008, with about 60% of that total delivered by “direct interventions” said BP, citing its efforts to streamline its business since late 2007, including a net headcount reduction of around 7,500. Capital expenditure for the full year totalled $20 billion, while proceeds from disposals totalled $2.7bn for the full year. BP expects organic capital expenditure of around $20bn and disposal proceeds of $2-3bn in 2010.

The 2009 results showed “the progress we have made and the momentum we have established in growing our business and making it more efficient,” commented Hayward. Success in exploration and access in 2009 meant “our confidence in the longer term has been reinforced.”

During 2009, BP gained access to significant new resource opportunities such as the huge Rumaila oilfield in Iraq. Working with partners China National Petroleum Co. and the Iraqi State Oil Marketing Organization, Hayward said BP aims to grow production in Rumaila from approximately 1 million barrels per day to 2.85 million barrels per day.

Other new resource grains for BP included coalbed methane in Indonesia and onshore gas in Jordan, as well as a strengthened position in the deepwater Gulf of Mexico and Egypt’s Nile Delta. Exploration success included the ultra-deep giant Tiber discovery and confirmation of the Mad Dog South extension in the Gulf of Mexico, and three further discoveries in block 31 offshore Angola.

Refining and Marketing earnings were impacted by extremely weak trading conditions, particularly in Q4. However, operational improvements across all of BP’s refineries resulted in refinery availability of 94%, Hayward adding: “We will remain focussed on further reducing costs and further increasing availability in 2010.”

In terms of employee safety, BP achieved a reported recordable injury frequency of 0.34, an improvement of 20% over 2008, while in Refining and Marketing reported major incidents were now 90% lower than in 2005.

“All our operated refineries and petrochemicals plants now operate on the BP operating management system (OMS), which governs how BP’s operations, sites, projects and facilities are managed,” Hayward said. “In Exploration and Production 47 of our 54 sites completed the transition to OMS by the end of 2009, and I expect all BP operations to be on OMS by the end of 2010.”

Looking at the business outlook going forward, Hayward said that BP expects recovery in the major economies of the US and Europe to be “slow and gradual.” While oil markets look well supported by OPEC, he expected gas markets to remain volatile and refining margins to remain depressed for the foreseeable future.