BP profits slide as Gulf disaster continues to take its toll

No great surprises from BP today: profits are down thanks to the Gulf of Mexico fall-out, while things still look shaky on the TNK-BP front...

by Emma Haslett
Last Updated: 31 Aug 2011
To say that BP has had a bad year would be an understatement, so it’s no surprise to see that reflected in the oil giant’s first-quarter results today. Oil prices may be a third higher than this time last year, but BP's replacement cost profit (the standard measure used by oil companies) slipped to $5.5bn for the three months to March, down from $5.6bn during the same period last year, thanks largely to lower production and the ongoing cost of the Gulf clean-up operation. On the other hand, that's still an awful lot of money - and one year on, BP thinks it has almost finished the clean-up job...

Unless you've been living under a rock for the last year, it won't come as a shock to learn the fall-out from the Gulf spill has done some real damage to BP's bottom line. It has earmarked $41bn to cover its direct costs (more than twice its entire profit for 2009), and has shelled out some $400m during the last three months. But the knock-on effects – including the need to sell various overseas assets, and the ban on deepwater drilling in the Gulf – also meant that production levels dropped by 11% compared to the year before. So the episode will clearly have longer-term repercussions for the business (although not necessarily negative ones - some investors would prefer a slimmed-down, higher-growth BP).

To add to its troubles, the UK Government’s decision to add a one-off charge on UK oil and gas production meant that BP also had to shell out an extra $683m in taxes on its North Sea ventures. Not ideal timing.

And then there’s the small matter of TNK-BP, its joint venture with AAR, a group of Russian billionaires. As it stands, TNK is responsible for about a third of BP’s annual production – and on the bright side, its net income has doubled in the last year. But considering relations are increasingly strained with its Russian partners, who aren’t very happy (to put it mildly) about BP’s attempt to get into bed with Russian oil giant Rosneft, the future of this lucrative JV remains unclear.

Yesterday Viktor Vekselberg, one of said oligarchs, suggested AAR would be prepared to sell its stake if it receives an ‘interesting proposal’ from BP. But the two sides currently seem to have a very different definition of 'interesting'. Even BP's very deep pockets might not be deep enough for this one.

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