BP Reveals $6.3 Billion Quarterly Loss Owing to Deepwater Horizon Bill

By Graham Ruddick, Guardian UK

29 July 15

Extra charge of $10.8bn taken on by UK oil company follows $18.7bn legal settlement to cover US federal, state and local compensation claims

P has moved to draw a line under the Deepwater Horizon disaster after slumping to a $6.3bn (£4bn) loss for the second quarter owing to costs linked to the oil spill.

The UK oil company slid into the red after taking an extra $10.8bn charge relating to the accident in the Gulf of Mexico five years ago. This provision follows the $18.7bn legal settlement reached by BP earlier this month to cover US federal, state and local claims.

The latest charge means the disaster has now cost BP $54.6bn since 2010. However, Bob Dudley, BP chief executive, said the legal settlement – which represents the largest environmental fine in US history – was a “landmark step forward for all parties”.

He added: “The numbers are huge but we can now plan for the future. That is a state we haven’t been in for five years.”

The legal settlement involves the company making the payments over the next 18 years. It is likely to be formally approved by US courts early next year, although BP has already started making payments and says it expects the settlement to be ratified.

Dudley said the deal could also shield the company from a hostile takeover, with deal speculation rife in the industry after Royal Dutch Shell agreed a £47bn takeover of BG Group.

He said: “As a result of the settlement in the US. it is actually less likely that someone would want to acquire BP and it is certainly not our intention to put the company up for sale.”

Shares in BP rose 5.3p, or 1.4%, to 392.65p following the announcement of its second-quarter results, despite the loss and the company reporting that underlying profits were lower than expected.

The Deepwater Horizon bill led to BP recording a replacement cost loss – the benchmark measure for the oil industry – of $6.3bn for the quarter and $4.2bn for the first half of 2015. This compares witha profit of $3.2bn in the second quarter of last year and $6.7bn in the first half.

Stripping out the Deepwater Horizon costs and other one-off items, BP said that underlying replacement cost-profit fell 64% year-on-year in the second quarter to $1.3bn.

This was worse than the $1.6bn expected by City analysts, but Dudley blamed the underperformance on a $600m hit to BP’s exploration business in Libya from write-offs and unexpected costs.

“It is hard for us to get something done right now,” he said of Libya. “We are not sure who the national oil company is.”

Energy groups are under pressure after a slump in the oil price, which has forced the sector to make thousands of job cuts around the world.

The price of Brent crude averaged $62 a barrel in the second quarter of 2015, compared with $110 in the same period a year earlier.

Dudley said BP were “resetting the company for a sustained weaker environment” and that it was a really tough time for the industry.

The company is working on the assumption that the oil price remains between $60 and $65 a barrel for the “short and medium term”.

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

As a consequence, BP now expects capital expenditure to be below $20bn for the year after previously stating it would hit the $20bn mark. Capital expenditure was $8.9bn in the first half compared with $11bn in the same period last year.

Biraj Borkhataria, analyst at RBC Capital Markets, said: “Although there can be some seasonality with capital expenditure, we could potentially see a further downward revision later in the year.”

The collapse in the oil price has sparked concerns about the future of the North Sea oil and gas industry.

Dudley said the industry had experienced a “shock to the system” and that the North Sea was a “problem child in terms of efficiency”. However, despite a number of projects being decommissioned, he said it was encouraging that oil rigs were becoming more efficient.

Nonetheless, BP revealed it now expects restructuring costs to hit $1.5bn in 2015, compared with initial expectations of $1bn as it cuts jobs around the world, including in Aberdeen. BP’s workforce has fallen by 5,000, from 80,000 at the end of last year, although some of this reduction is due to the sale of assets.

The company is aiming to sell $10bn of assets this year to help insulate it from the oil price fall and has already sold-off $7.4bn. This sell-off is on top of the $38bn-worth that BP sold in response to the Gulf disaster.

Royal Dutch Shell and Centrica, the parent of British Gas and the owner of a North Sea operation, are also expected to warn about the squeeze on the industry when they report figures this week.