You are here

BP falls into Q2 loss on oil spill charge, price slump

[LONDON] BP said Tuesday it sank into the red in the second quarter, after taking a vast US$10.8-billion hit on costs linked to the deadly 2010 Gulf of Mexico oil spill.

The British energy giant's performance also took a heavy knock from slumping global oil prices.

Losses after taxation stood at US$5.82 billion between April and June, BP said in a results statement. That contrasted with net profit of US$3.37 billion in the second quarter of 2014.

"In the quarter BP took a charge of US$10.8 billion in total related to the Gulf of Mexico oil spill - including US$9.8 billion associated with the government settlements as well as charges for further business economic loss claims and other ongoing costs," BP said in the earnings release.

BP had already announced on July 2 that it would pay a record US$18.7 billion to compensate the US government and five states for damages stemming from the oil spill.

The British company's total pre-tax charge for the incident now stands at US$54.6 billion.

The spill was sparked by a blast on the Deepwater Horizon rig which killed 11 men and sent millions of barrels of oil flowing into Gulf waters, in one of the worst environmental disasters to strike the United States.

BP added Tuesday that underlying replacement cost profit - a measure of earnings adjusted for one-time items and inventory charges - tumbled 64 per cent to US$1.3 billion as oil prices collapsed.

That missed market expectations of US$1.7 billion, according to analysts polled by Bloomberg News, and compared with US$3.6 billion a year earlier.

Brent North Sea crude, a benchmark for more than half the world's oil, has dived by about 50 per cent in value over the last year, slashing profitability across the sector and forcing energy majors to slash investment.

Underlying profit "reflected the impact of continued low oil and gas prices, a reduced contribution from Rosneft, and one-off charges arising from circumstances in Libya, but also continuing strong earnings from BP's downstream businesses and lower cash costs throughout the group", BP said.

World oil prices collapsed by as much as 60 per cent between June 2014 last year and January, depressed by a global supply glut that was exacerbated by booming US shale output.

"The external environment remains challenging, but BP moved quickly in response and we continue to do so," said BP Chief Executive Bob Dudley.

"Our work to increase efficiency and reduce costs is embedding sustainable benefits throughout the group and we continue with capital discipline and divestments." In recent weeks, crude futures have also fallen heavily on fears of rebounding Iranian oil production after Tehran's landmark nuclear deal with Western powers.

"In the past few weeks oil prices have fallen back in response to continued oversupply and market weakness and the recent agreements regarding Iran," added Mr Dudley.

"I am confident that positioning BP for a period of weaker prices is the right course to take, and will serve the company well for the future."