BP in the red for the first time since 1992 with $5bn loss

BP slumps to a massive annual loss - but the restoration of the dividend shows that things are looking up for the embattled UK oil giant.

by James Taylor
Last Updated: 19 Aug 2013
For most companies, a $5bn loss would be a devastating and probably fatal blow. But BP isn’t like most companies. The oil giant reported its 2010 results this morning, and despite that eye-watering figure – its first annual loss in almost 20 years – there were actually some reasons for optimism. For a start, given that it put aside $40bn to cover the costs of the Gulf of Mexico oil spill this year, it’s remarkable this loss wasn’t bigger. And BP also confirmed today that it’s restarting its dividend (albeit at a lower rate). With new boss Bob Dudley reshaping its asset portfolio and banging the drum on safety, BP’s prospects look an awful lot better now than they did in the summer.

Of course, it would be daft to make light of a loss on this scale. $5bn is a lot of money by any standards, particularly when you think that BP reported a $14bn profit this time last year. The cost of the Gulf clean-up job has inched up by another $1bn to $41bn, a colossal sum (though it remains to be seen whether it will need as much as that). And even if you strip out exceptional costs like this, its underlying profit of $4.4bn came in well below the $4.9bn analysts were expecting. All of which pushed the share price down by nearly 2% this morning, wiping another billion or so off BP’s value.

One bit of good news for shareholders was the restoration of the dividend, the cancellation of which since the spill has already deprived them of $5bn. However, the new divi is only half the size of the old one (at 7 cents a share), and according to the BBC’s Robert Peston, that could leave investors £10bn poorer over the next decade than if the Gulf disaster hadn’t happened. Since most UK pension funds benefit from this divi, that’s bad news for all of us.

Still, after a shocking year, BP at least seems to be going in the right direction. New boss Bob Dudley is saying all the right things: BP is ‘a company in transition’, he said today, but it will emerge ‘safer, stronger, more sustainable [and] more trusted’. And his efforts to ‘adjust the shape of the business’ continue. He’s selling a big chunk of BP’s US refinery business – including, significantly, the Texas City refinery where there was an explosion back in 2005. And he’s stepping up its spending on exploration, as it looks for big new fields.

This will bring fresh problems, though. Look at Russia, where the oligarchs behind its joint venture TNK-BP are apparently hopping mad about BP’s recent state-backed tie-up with Rosneft; they’ve just blocked a $1.8 dividend payout in a bid to stall the deal. (Although since BP has the Kremlin on its side this time, that’s one fight it can probably expect to win.)

Signs of recovery, then – but still an awfully long way to go.

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