Oil giant BP said this morning that replacement cost profit, the standard income measure for oil companies, hit $5.6bn (£3.6bn) in the first three months of 2010. That’s a massive 135% increase on last year’s equivalent figure. Although demand is still pretty weak, it’s benefited from higher oil prices (fuelled by greater optimism about the global economy), which have boosted the bottom line substantially. Unfortunately, this stellar showing has been rather overshadowed by last week’s explosion at one of BP's rigs in the Gulf of Mexico (and the ensuing spill) – just when its safety reputation seemed to be recovering...
The first quarter saw a good performance from BP’s exploration and production division (the bit that pumps the stuff out of the ground); this reported profits of $8.29bn, an increase of 92% on the same period last year. TNK-BP, its once-troublesome Russian joint venture, is also going great guns, with net income up from $134m to $543m. But the biggest reason for the jump in profits was the rise in oil prices – the cost of a barrel over the past three months has averaged $76, compared with $41 a year ago (good for BP, bad for motorists). So it’s no wonder BP is making more money.
Sadly, these impressive numbers have been rather tainted by last week’s accident at a drilling rig in the Gulf of Mexico: 11 people remain missing after the Deepwater Horizon rig caught fire and sank. BP is now frantically trying to contain the spill – quite a task, considering 1,000 barrels are still gushing into the sea every day. CEO Tony Hayward did his best to sound upbeat today, saying that the company was confident it could handle the spill offshore. But it’s undoubtedly a big setback for BP, after all his efforts to restore confidence in the company’s safety measures since taking over the top job.
Despite its healthy finances, BP has decided to hold its dividend at 14p per share, which is probably politic given last week’s events. Also, the company has other things on which to spend its wedge: it’s planning to pay French oil group Total $991m for its holdings in two oil fields in the North Sea, and it’s also buying a 15.7% interest in Valhall and a 25% interest in Hod, both in the southern part of the Norwegian continental shelf. BP hopes these new interests will boost production, which was broadly flat at 4.01m barrels a day.
However, even when BP has mopped up the immediate mess in the Gulf of Mexico, the cost of the clear-up operation may well eat into profits next quarter. And the cost to its reputation may be even longer-lasting.
In today's bulletin:
Lloyds back in the black as bad debts fall
BP profits soar - as it battles rig explosion
Apple shows its teeth in lost iPhone row?
Imperial Tobacco beats forecasts - but bemoans its lot
Lady Geek: Gaming grandmas are the new geeks