BP Has Worst Profit in 10 Years on Libya Write-Off, Trading
BP Plc reported the lowest quarterly profit in at least 10 years after a boom in trading faded and the conflict in Libya forced almost $600 million of writedowns.
Profit adjusted for one-time items and inventory changes dropped to $1.3 billion in the second quarter, 64 percent lower than a year earlier, the London-based company said Tuesday in a statement. That missed the $1.7 billion average estimate of 17 analysts surveyed by Bloomberg.
The weaker-than-expected results pile pressure on Chief Executive Officer Bob Dudley to cut capital spending to maintain dividends. The company is no longer benefiting from the strong trading that added about $350 million to profit in the first quarter, while a halt to operations in Libya eroded earnings from oil and gas exploration.
“The miss is primarily because of the Libyan charge,” Jason Gammel, a London-based analyst at Jefferies Group LLC, said by phone. “BP is restructuring costs and that’s working out well for them as oil continues to be lower.”
Brent crude, a benchmark for more than half the world’s oil, has dropped about 50 percent in the past year. Dudley is bracing Europe’s third-biggest oil producer for a longer period of low prices by slashing spending and selling assets.
Weaker Prices
“The external environment remains challenging, but BP moved quickly in response,” Dudley said in the statement. “I am confident that positioning BP for a period of weaker prices is the right course to take.”
BP lowered its capital spending forecast for this year to less than $20 billion after investing about $23 billion in 2014.
The weak results, together with limited production growth expected in 2015 to 2017, “places more emphasis on cost-cutting,” Alastair Syme, an oil analyst at Citigroup Inc., said in a note to clients.
As the first of the world’s five largest oil companies to announce earnings this quarter, BP puts investors on guard for a decline in profitability at its competitors. Royal Dutch Shell Plc, Total SA, Exxon Mobil Corp. and Chevron Corp. are all scheduled to report second-quarter results this week.
BP traded up 0.2 percent at 388 pence in London as of 8:31 a.m. local time after earlier falling as much as 1.1 percent. The shares have lost 5.6 percent this year and declined in four of the past five years after an oil spill in the Gulf of Mexico in 2010.
Spill Charge
BP took a $10.8 billion charge in the quarter for liabilities related to that spill, according to the statement. That takes the total amount set aside for payments to more than $54 billion.
The company this month reached a record $18.7 billion agreement to settle all federal and state claims from the spill, the largest in U.S. history. The payments will be staggered over as many as 18 years with an annual maximum of $1.1 billion.
On Monday, BP was ordered to start processing payments and was given 30 days to pay as much as $1 billion to local governments, according to the company.
While removing uncertainty over penalties, BP will need to replace lost production after selling billions of dollars of assets to pay for the spill. Crude’s slump has made it more difficult.
Adjusted profit before interest and taxes from oil and gas production and sales totaled $494 million in the quarter, compared with $4.66 billion a year earlier. The decline reflects lower prices and the Libyan write-offs.
France’s Total became the first major oil company to take impairments in Libya, writing off $755 million in the first quarter.
Oil Trading
BP’s adjusted pretax profit from the downstream business, which includes refining and trading, was $1.9 billion, up from $733 million a year earlier but lower than the $2.2 billion in the first quarter. The contribution from oil trading returned to “average levels” in the second quarter, the company said, after a boost in the first three months of the year.
Statoil ASA, Norway’s largest oil company, also reported quarterly earnings Tuesday. Net income excluding financial and other items fell to 7.2 billion kroner ($882 million) from 9.9 billion kroner a year earlier, beating analyst estimates.
Source: Bloomberg – BP Has Worst Profit in 10 Years on Libya Write-Off, Trading
