BP back in the black (gold) already with £1.1bn profit

Despite its terrible year, BP has already returned to profit. But that doesn't mean it'll be plain sailing from here on in.

by Emma Haslett
Last Updated: 02 Nov 2010
Another big milestone for BP: only a few weeks after it finally managed to plug the Macondo well in the Gulf of Mexico, source of one of the worst environmental disasters of recent times, the oil giant said today that it was already back in the black. The oil giant has just posted a quarterly replacement cost profit (the standard measure of income for oil companies) of $1.85bn or £1.15bn. OK, so that’s 63% less than the same period last year – but given that it has already shelled out $40bn on fixing the spill, it just goes to show just how profitable BP's core business actually is...

This latest result represents an impressive turnaround from BP’s dire previous quarter, in which it made a massive loss of $17bn. And it’s even more encouraging if you ignore one-off costs – like the small matter of paying compensation and costs to clean up the oil spill – without those, its underlying profits actually rose to $5.53bn. That’s 18% higher than the same period last year, and considerably up on analysts' average forecast of $4.6bn, according to Reuters. And while part of that is thanks to higher oil prices, it’s also just a function of the fact that pumping the black stuff out of the ground is a hugely lucrative business.

But the company is still in for bumpy few months. Bob Dudley, the its new CEO, faces a huge challenge to overhaul BP's operations even as it pays for the clean-up job; this will include selling off $30bn worth of assets and streamlining its oil exploration and production division - which, incidentally, saw earnings increase by more than $2bn in the last three months.

What's more, the final bill for the clean-up job may end up being higher than $40bn; this number is based on the ‘current best estimate of those costs that can be reliably measured at this time’, so the final cost could come in above that (or, to be fair, below). At the moment, it’s not being helped by the fact that Japanese trading house Mitsui, which owns 10% of the Macondo well, is refusing to pay the $1.9bn bill handed to it by BP until the latter explains exactly how it arrived at this total – which Mitsui claims that so far, BP has failed to do.

Still, today's return to profit is a big psychological step for BP, as it continues its efforts to put the disaster behind it. And with any luck, Dudley’s very public focus on improving safety standards (all staff bonuses will be calculated on safety performance, for example) will begin to restore its battered image. It’s going to be a slow process, though.

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