BP Profit Plunges on Another Spill Charge

LONDON (Dow Jones Newswires), Nov. 2, 2010

BP Tuesday posted a 66.5% fall in net profit for the third quarter as it took another $7.66 billion pre-tax charge related to the Gulf of Mexico oil spill, although the company beat analysts' expectations on some key benchmarks.

The U.K.-based energy giant said net profit for the three months ended September 30 totaled $1.79 billion, compared with $5.34 billion for the third quarter of 2009. Many of BP's peers, including Shell and ExxonMobil, have reported huge increases in year-on-year quarterly profits.

The additional charge reflected a delay in completing the costly relief well that finally sealed the blown-out Macondo well in September, costs for decontaminating and demobilizing vessels involved in the response, and $0.8 billion paid out of the compensation fund, BP said. It comes on top of a pre-tax charge of $32.2 billion in the second quarter related to the spill.

Despite this, BP struck a confident note for the year ahead. "These results demonstrate that BP is well on track for recovery," said Chief Executive Bob Dudley. "This strong operating performance shows the determination of everyone at BP to move the company forward and rebuild confidence."

Dudley is scheduled to hold his first earnings-related press conference since becoming chief executive later Tuesday.

BP has announced asset sales worth $14 billion, as it seeks to raise funds related to the cleanup in the Gulf of Mexico. The company plans to sell $25-30 billion in all by the end of 2011.

BP maintained positive cash flow in the quarter despite the huge cost of the spill and its ratio of net debt to net debt plus equity rose just two percentage points on the year to 23%.

"Given the strength of our underlying cash flows and the investment opportunities available to us, our 2011 capital expenditure is currently under review and is expected to exceed the $18 billion previously indicated," the company said in a statement.

The costs of the oil spill in the quarter were greater than anticipated, but BP's underlying performance was strong and reflected a general improvement in trading conditions across the whole business, said Panmure Gordon analyst Peter Hitchens.

The company said its clean replacement cost profit, a closely-watched figure which strips out charges related to the spill, as well as the effects of oil-price swings, rose 18.3% for the period to $5.53 billion, compared with $4.67 billion for the third quarter of 2009. The increase compared with the 2009 quarter was due to higher oil prices and stronger demand for refined oil products.

This was well above expectations of $4.60 billion in a Dow Jones Newswires poll of 12 analysts, although the increase in year-on-year profits lagged the performance of BP's rivals Shell and Exxon. For example, Shell quarterly profits rose 88% compared with the 2009 quarter.

A big part of BP's weaker underlying performance compared with its rivals was a 4% decline in total oil and gas production to 3.763 million barrels a day, which was due to maintenance shutdowns and the effect of the Gulf of Mexico oil spill.

BP said it would review its dividend policy in February 2011. The British oil giant canceled dividends in the second and third quarters of 2010 after the oil spill.

Copyright (c) 2010 Dow Jones & Company, Inc.


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