BP Profit Drops After Taking Further Charge on Gulf Spill

BP Plc said profit fell 66 percent after taking a further charge of $7.7 billion related to the biggest oil spill in U.S. history.

Third-quarter net income dropped to $1.8 billion, or 9.4 cents a share, from $5.3 billion, or 28.2 cents, in the year- earlier period, London-based BP said today in a statement. Excluding one-time items and inventory changes, profit beat analyst estimates.

Chief Executive Officer Robert Dudley said BP is “well on track” for recovery with sales agreements in place for about $14 billion of assets, about half of the target needed to foot the bill for the Gulf of Mexico accident. A delay in completing the relief well required to seal the leak pushed the total charge BP booked up to $39.9 billion, and the company reiterated its plan to consider restoring the dividend early next year.

“The underlying results are good, but they’re hit by another charge,” said Peter Hitchens, an analyst at Panmure Gordon & Co. in London. “This starts to clear up some of the uncertainty. It’s going to take some time.”

Beat Estimates

Excluding one-time items and inventory changes, profit was $5.5 billion. That beat the $4.6 billion mean estimate of 16 estimates in a Bloomberg News survey. The results were boosted by a lower tax rate compared with a year earlier and improved earnings from refining.

BP rose 1.8 percent to 431.65 pence in London.

Production slipped to 3.8 million barrels of oil equivalent a day from 3.9 million a year earlier. Asset disposals will reduce output by about 100,000 barrels a day in the fourth quarter, BP said.

Royal Dutch Shell Plc, Europe’s biggest oil company, beat analyst estimates with a profit of $4.9 billion in the third quarter. Exxon Mobil Corp., the world’s largest company, posted its largest profit increase in six years to $7.35 billion, while Chevron Corp. unexpectedly said profit dropped.

“This strong operating performance shows the determination of everyone at BP to move the company forward and rebuild confidence after the terrible events of the last six months,” Dudley said in the statement.

The spill started with an explosion on the Deepwater Horizon rig that killed 11 workers. The disaster cost Tony Hayward his job as CEO and prompted the company to suspend its dividend. The Gulf of Mexico accounts for about a tenth of BP’s global production.

Partners Billed

BP said it has billed Anadarko Petroleum Corp. and Mitsui & Co.’s oil exploration unit, its two partners in the well, $4.3 billion for their share of the costs. Both are withholding payment in light of the investigations into the accident.

While President Barack Obama lifted the six-month ban on deepwater drilling in the Gulf Oct. 13, the U.S. still may fine BP as much as $17.6 billion for the spill and bar the company from future licenses.

“BP has a lot in the Gulf that has been shut off,” said Christine Tiscareno, an equity analyst at Standard & Poor’s in London. “They’ve said they’ll reinstate the dividend, but the question is by how much.”

Dudley split the exploration and production division into three, ousting executive director Andy Inglis in the process, and created an independent safety division. BP said it will review the payout, which was canceled for the first three quarters of the year, when it publishes full-year results in early 2011.

Investment, Debt

The company said capital expenditure may exceed a previous forecast of $18 billion next year because of cash flows and investment opportunities.

The company plans to reduce net debt to $10 billion to $15 billion by the end of next year from $26.4 billion.

BP dropped to a 14-year low of 302 pence on June 29 and bondholders priced in more than a 40 percent chance of default at the height of the disaster, prompting speculation that the company would be taken over. The stock has recovered 40 percent since that low after BP set up a $20 billion compensation fund with the U.S. government and set aside costs.

Among asset sales, BP has sold operations in Vietnam and Venezuela to its Russian joint venture partner TNK-BP for $1.8 billion. It has also disposed of fields in the U.S., Canada, Egypt, Colombia, and Malaysia.

Higher oil and gas prices helped BP. Oil futures averaged $76.21 a barrel in the quarter, a 12 percent increase from a year earlier, and natural-gas futures rose 23 percent.

Refining margins have also improved. Profit from turning crude into fuel rose about 33 percent in the third quarter from a year earlier, to $4.53 a barrel from $3.41, according to BP’s Global Indicator Margin.

To contact the reporter on this story: Brian Swint in London at bswint@bloomberg.net.

To contact the editor responsible for this story: Will Kennedy at wkennedy3@bloomberg.net

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