LONDON - BP Plc cemented its status as problem child among the world's top oil companies on Tuesday with unexpectedly weak quarterly results, slashing $5 billion off the value of its U.S. assets and undershooting forecasts at operating level.
The British oil company, struggling under the weight of
litigation over the 2010 U.S. Gulf oil spill and a row with its
Russian partners, said both oil production and refining margins
fell in the second quarter and would fall again in the third.
Analyst Richard Griffiths of Oriel Securities said the
figures were “testing the faith” of investors and on a
divisional basis “missed (expectations) at every level”.
Shares in western Europe’s second-largest oil company were
down 4.5 percent at 424 pence at 1135 GMT, by far the biggest
faller of the day among European oil stocks.
The $5 billion charge included $2.7 billion for the
declining value of U.S. refineries and a $2.1 billion two-part
writedown of U.S. shale gas assets, which have been hit by a
slump in prices, and to take account of suspension of the
Liberty project in Alaska.
BP abandoned Liberty earlier in July, saying the field
looked likely to cost more than the $1.5 billion it had planned
to spend there.
The shale gas and refinery writedowns are no surprise.
Others have being doing the same amid weak fuel manufacturing
margins and with U.S. gas prices near 10-year lows, below cost
for some operators of shale fields.
Shale technology using underground “fracking” explosions and
horizontal drilling is wringing gas from reserves previously
thought unrecoverable, but its relatively high cost has made it
a victim of its own success as a glut develops in the United
States.
But BP also booked an extra $847 million provision for the
2010 U.S. Gulf oil spill, bringing the total set aside for the
disaster to $38 billion, or well over two years’ worth of
profits at current prices.
Investors are hoping for a deal with U.S. authorities before
the U.S. elections, but BP warned there was still “significant
uncertainty” with regard to its potential obligations there.
BP is also in dispute with the co-owners of TNK-BP, who on
Monday blocked the payment of dividends from the business that
provides 29 percent of BP’s output, and it knows it will not be
forgiven any other hiccups while those problems weigh on its
share price.
“Until we are able to resolve one or both of those issues we
will continue to have a higher level of uncertainty over the
company,” Chief Executive Bob Dudley told reporters after the
results.
Even before Tuesday’s slide, BP shares traded at just 6.9
times forecast earnings, compared with an average of 10.3 times
for the 30 companies in the Dow Jones Global Titans
index, and well below the ratio commanded by industry number one
ExxonMobil at 11.5.
Charges tipped BP into a loss for the quarter of $1.4
billion. Adjusted for the charge and other one-offs, profits on
a replacement cost basis were $3.7 billion, down from $5.7
billion a year ago and below expectations of around $4.4
billion.
Analysts said an unexpectedly large loss of output as a
result of maintenance in the high-profit offshore U.S. Gulf – a
problem that also hit rival Royal Dutch/Shell in the
quarter – was partly to blame for the miss.
They had also underestimated the impact of a tax lag on
Russian production, which affected the profits of BP’s Russian
joint venture, TNK-BP, to the tune of about $700
million.
The company said it still sees a “significant uncertainty”
over U.S. oil spill obligations but that it was in “advanced
talks” to sell Texas City and Carson, the two U.S. refineries it
has earmarked for disposal, and would get them off the books by
the end of 2012 as planned.
