BP Reports Loss on U.S. Asset Writdowns, Production Slump

BP CEO Bob Dudley
Robert " Bob" Dudley, chief executive officer of BP Plc. Photographer: Simon Dawson/Bloomberg

BP Plc, Europe’s second-biggest oil producer, reported a loss in the second quarter as the company wrote down the value of U.S. assets and output dropped.

BP posted a net loss of $1.4 billion compared with a profit of $5.7 billion a year earlier, the London-based company said today in a statement. After one-time items and changes in inventories, profit missed analyst estimates. Production, excluding output from the Russian TNK-BP venture, slipped 7.4 percent to 2.3 million barrels of oil equivalent a day.

The results, which included impairment charges totaling $4.8 billion, are a setback for Chief Executive Officer Bob Dudley’s effort to rebuild the company after the 2010 Gulf of Mexico spill by focusing on higher-margin fields and selling off less-profitable assets. Output will remain limited by maintenance work in the third quarter, BP said.

“These results are a significant miss and likely to disappoint the market” even after the writedowns are stripped out, Peter Hutton, an analyst at RBC Capital Markets, said in a note to clients. “This leads us to be concerned about BP’s strategic progress.”

BP fell 4.4 percent, the most since Sept. 22, to 425 pence by the close in London.

BP took $4.8 billion in impairment charges as it wrote down the value of U.S. shale gas assets and refineries and it decided to suspend the Liberty project in Alaska. It maintained the dividend at 8 cents a share.

Missed Estimates

Adjusted first-quarter earnings fell to $3.7 billion from $5.7 billion a year earlier. The average estimate of 16 analysts surveyed by Bloomberg was for profit of $4.6 billion on that basis.

Oil production adjusted for disposals slipped 2.7 percent in the second quarter, BP said. It stuck to the prediction that production adjusted for divestments and excluding TNK-BP will be “broadly flat” for the year.

“The effects of price movements have impacted our earnings in the quarter,” Dudley said in a statement today. “Our extensive turnaround and maintenance program, which will continue into the third quarter, is also affecting some aspects of our near term results.”

Royal Dutch Shell Plc, Europe’s biggest oil company, reported a larger decline than expected in profit last week. Exxon Mobil Corp., the world’s largest producer, also missed analysts’ estimates. Brent crude slid 7 percent in the second quarter from a year earlier to average $108.76 a barrel on slowing global economic growth.

Share Slump

BP is down 7.7 percent this year as it came closer to putting the April 2010 Macondo oil spill behind it. The company reached a $7.8 billion settlement with victims in March. BP still faces a trial over fines and liabilities with the U.S. Department of Justice. On July 12, the company agreed to pay a $13 million fine for failing to correct safety shortfalls at the Texas City refinery.

BP increased its provision for spill costs by $847 million, bringing the total set aside to $38 billion. Profit was reduced by $700 million from the first quarter by a lag in Russian export duties on oil produced by TNK-BP, it said.

“There are misses across the board,” said Jason Gammel, an analyst at Macquarie Capital Europe Ltd. in London. “Dudley won’t be judged on just one quarter, but the underlying profit per barrel just isn’t driving the bottom line it should be at this level of production.”

Dudley ‘Impatient’

Dudley said that while he’s “impatient” with the company’s progress, “We are not going to drift off the path of the focus on safety and risk management,” he told journalists on a conference call. “Stepping on the accelerator to bump up performance in expense of that is not going to happen.”

BP is seeking to sell its stake in TNK-BP after years of disputes with partners AAR, which in 2011 blocked an alliance with OAO Rosneft to explore Russia’s Arctic waters. Rosneft, Russia’s biggest oil company, said this month it’s interested in buying BP’s half of TNK-BP.

Dudley told reporters on a conference call that he doesn’t have plans yet for what the company would do with the cash from TNK-BP because a sale isn’t certain and it would be a discussion for the board.

BP is targeting total asset sales of $38 billion by the end of next year after about $24 billion of divestments so far. The company sold interests in natural-gas fields in Wyoming to Linn Energy LLC for $1 billion in June and also disposed of stakes in two North Sea fields.

The company plans to dispose of the Texas City and Carson refineries by the end of this year.

“We’re in discussions with a number of parties on both of the refineries,” Dudley said on the conference call. When asked if he would consider spinning off BP’s refining arm, Dudley said, “I don’t buy strategically that that would necessarily unlock value. But we continue to look at many options for BP.”


Before it's here, it's on the Bloomberg Terminal. LEARN MORE