In the past three months, BP’s replacement cost profit – which strips out the impact of oil price fluctuations - has plunged from $5.4bn in Q2 last year to just $238m in the second quarter of 2012. Even underlying replacement cost profit, which excludes exceptional items, looks pretty ugly: just $3.7bn, compared with $5.7bn last year, and almost a billion dollars below forecasts.
And, once you throw BP’s inventory values back in (BP’s balance sheet reads a bit like Einstein’s workings out for his theory of relativity), including oil price fluctuations, impairments, warts and all, BP made a net loss of $1.38bn. Ouch.
BP group chief executive Bob Dudley is understandably hangdog in his statement. ‘We recognise this was a weak earnings quarter,’ he says. ‘The effects of price movements have impacted our earnings in the quarter. Our extensive turnaround and maintenance programme, which will continue into the third quarter, is affecting some aspects of our near term results. Rebuilding trust with our shareholders and other stakeholders is vitally important.’
But these stakeholders are not happy. BP’s assurances that down-time logged at several refineries for essential maintenance would ensure a more productive second half have fallen on deaf ears; the share price dipped 3% in early trading.
Planned maintenance isn’t the only thing dragging down profit, though. Oil and gas prices have dropped in the US, and net income from BP’s troubled joint venture TNK-BP has also dropped $700m on the first quarter. The Liberty project in Alaska has been suspended indefinitely, and the value of BP’s shale gas assets has also plummeted. Overall, impairment losses at the oil giant add up to an eye-watering $4.8bn for the second quarter.
The Gulf of Mexico saga also continues. BP has logged pre-tax non-operating losses of $847m related to the Deepwater Horizon spill, mainly due to litigation costs and pay-outs for injured parties. But at least BP has learned from its mistakes. A huge chunk of Q2 profit was sacrificed to make sure that its current Gulf of Mexico operations are sound – taking one of the company’s most high-margin sites offline. And works won’t be wrapped up any time soon, with BP warning that third quarter earnings will also be affected.
Still, better to be safe – and sound – than sorry.