BP profits disappoint in first quarter

Not-so-slick earnings at the oil giant as BP sells off oilfields to pay for Deepwater Horizon.

by Rebecca Burn-Callander
Last Updated: 19 Aug 2013
The oil giant made $4.9bn in replacement cost profit (which strips out the effects of oil price fluctuations), down from $5.6bn in 2011. It’s a disappointing first quarter result for BP, which was forecast to bring in earnings of $5bn or more. As a result, BP’s shares took a tumble on the FTSE this morning, down 2.7% to 433p, the biggest share price fall ons the board.

BP’s big problem is that it is having to sell off some oil fields following the disastrous spill in the Gulf of Mexico in 2010. The oil corp needs to meet substantial financial obligations as a result of the Deepwater Horizon blast; the Macondo well explosion took place almost exactly two years ago, killing 11 workers and creating the worst offshore spill in US history.

There’s no doubt this is a bitter pill for BP’s management to swallow, what with the spiralling price of oil at the moment. But BP simply can’t cash in on the pricey black stuff at present: it's hard to maximise production when you're having to sell some of the sites that are the source of that production. BP’s oil and gas extraction, excluding the Russian joint-venture TNK-BP, is down 6% to 2.45 million barrels of oil per day.

BP has made £23bn from its divestments so far, with 60% of its assets sales complete. And it has nearly amassed enough cash to pay off its debt: $16.6bn of its target $20bn has now been placed into trust for the Deepwater Horizon pay-offs, a year earlier than planned.

With all these factors at play, it makes sense that CEO Bob Dudley is fairly upbeat, despite the firm’s lacklustre profits: ‘We have made a good start against our strategic priorities for 2012,’ he says. Priorities which include restoring BP’s reputation – AKA leaving the Deepwater disaster behind it at fast as possible.

Proving that sentiment has no place in business, the oil group is already re-establishing its presence in the Gulf of Mexico, with eight drilling rigs due to open in the region by the end of this year. However, it still faces a trial over liability for Deepwater with the US Department of Justice.

BP’s results, released just days after rival Shell announced better-than-expected profits,will only increase the pressure on Dudley to return BP to its previous form, fast. As for the controversial drilling in the Gulf of Mexico, if BP doesn't do it, someone else will, with billion of dollars worth of oil at stake.

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