LONDON - BP PLC posted Tuesday a 72% drop in profit for the fourth quarter as its oil and gas production continued to fall and it agreed to pay billions of dollars in fines to the U.S. government, a performance that analysts said showed the company is still struggling to recover from the Deepwater Horizon oil spill.
The results, which come as the company faces the start of a trial on Feb. 25 that will determine whether it faces billions of dollars more in civil penalties for the spill, underscore how BP's promised turnaround from the disaster in the Gulf of Mexico almost three years ago is proving elusive.
BP Chief Executive Bob Dudley said the company passed many milestones in 2012, including selling assets and starting up new projects, which have laid a solid foundation for growth.
"We will continue to see the impact of this reshaping work in our reporting results in 2013. By 2014, I expect the underlying financial momentum to be strongly evident," Mr. Dudley said. "I don't regard our results as a setback."
BP said it started up five major new oil and gas projects last year and expects to bring four more--in Angola, Australia, the Gulf of Mexico and Azerbaijan--into production by the end of this year. A further six major projects are expected to start up through 2014.
However, the company's total oil and gas production fell by 7% to 2.29 million barrels of oil equivalent a day in 2012 and is expected to fall again in 2013, mainly as a result of the sale of oil-producing assets to cover the cost of the Gulf spill.
Despite being allowed to resume drilling in the Gulf of Mexico and continuing to operate around 700 offshore licenses, BP has been unable to reverse the steady decline in its oil production in the U.S., which has fallen by 40% since the disaster.
Excluding one-off gains and losses from asset sales or fines, BP's profit was above expectations, but its operating performance was still bumping along the bottom, analysts said.
"It's all a bit messy because it's beaten at the bottom line, but the operational results are quite mixed, with upstream not looking that impressive," and are unlikely to improve much until 2014, said Investec analyst Stuart Joyner.
The London-based oil and gas company said its replacement cost profit, a figure that excludes gains or losses in the value of inventories and is therefore equivalent to the net profit figure reported by U.S. oil companies, was $2.14 billion in the three months ended Dec. 31, compared with $7.61 billion in the fourth quarter of 2011.
Profit was reduced by a pretax charge of $4.13 billion related to the oil spill in the Gulf of Mexico, $3.85 billion of which is for the settlement of all federal criminal charges related to the disaster, BP said. This was partially offset by $3.31 billion of proceeds from the sale of oil and gas production assets during the quarter.
The drop in profit was particularly sharp compared with a year ago because BP's earnings in the fourth quarter of 2011 were boosted by a gain of $4.1 billion from oil-spill liability settlements with Anadarko Petroleum Company and Cameron International Corp.
BP has so far taken pretax charges totaling $42.2 billion for the Gulf of Mexico oil spill.
Fourth-quarter earnings were also reduced by the sale of BP's interest in major Russian oil producer TNK-BP Ltd. to OAO Rosneft, which was agreed on Oct. 22. The venture contributed $575 million in replacement-cost profit before interest and tax, versus $987 million a year ago.
Copyright (c) 2012 Dow Jones & Company, Inc.
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