BP Swings Back to Profit but 2010 Oil Spill Is Still Taking a Toll -- Update
August 01 2017 - 5:11AM
Dow Jones News
By Michael Amon
LONDON-- BP PLC on Tuesday reported modest profit for this
year's second quarter, as its performance continued to be held back
by the 2010 Gulf of Mexico oil spill that has cost it more than $60
billion.
The British oil giant is the last of the world's biggest Western
oil companies to report its quarterly earnings. Like its peers
Exxon Mobil Corp. and Royal Dutch Shell PLC, BP returned to profit,
saying its equivalent of U.S. net earnings was $553 million,
compared with a loss of $2.2 billion during the second quarter of
2016.
The company increased its oil-and-gas production by almost 10%
compared with a year earlier and has begun feeling the full effects
of $7 billion in cost cuts enacted last year, said Chief Financial
Officer Brian Gilvary in an interview. The result is that the
company now needs a break-even oil price of $47 a barrel, down from
the $60 a barrel it reported last quarter.
"We are just doing a lot of the things we said we would do," Mr.
Gilvary said.
BP's share price rose over 2.5% in early London trading, as the
company's results beat analyst expectations.
Mr. Gilvary said the only thing holding back BP's profit was
more than $4 billion in payments related to the 2010 blowout on the
Deepwater Horizon oil rig in the Gulf of Mexico. The explosion
killed 11 workers, spilled millions of barrels of oil into the
ocean and forced BP into a long period of retrenchment.
Mr. Gilvary said the payments had a reached a "high point for
the year" and "will taper down from here" to about $1 billion a
year. The company reached a $20 billion settlement in 2015 with
federal and state authorities that must be paid out over almost two
decades.
The Deepwater Horizon incident has been a drag on BP at the
worst time, weighing on the company during a historic downturn in
oil prices. BP's profits and cash flow have consistently lagged
behind its peers. Its net debt deepened to more than $39 billion in
the second quarter, compared with about $30 billion in the same
period last year, because of such payments, BP said.
Mr. Gilvary said BP was girding for oil prices in the range of
$45 a barrel to $55 a barrel this year and next year, a recovery
from last year's low of $27 a barrel but well below the
consistently high levels of $100 a barrel seen from 2011 to 2014
before prices crashed.
BP is targeting a break-even oil price of $35 a barrel to $40 a
barrel, a sign of how pessimistic big oil companies have become
about the oil market's future.
Mr. Gilvary highlighted the company's improved cash flow, saying
BP was covering its expenses with cash generated from operations
rather than debt. The company said it generated $4.9 billion in
operating cash flow in the second quarter, excluding Deepwater
Horizon, compared with $3.9 billion the year before.
"BP has underperformed its peers recently and we would expect
some of that underperformance to reverse in the near term," wrote
Biraj Borkhataria, an oil-company analyst for RBC Capital Markets,
in a note Tuesday.
Overall, BP's exploration-and-production unit was buoyed by a
raft of discoveries and new projects in Senegal, Egypt, the U.K.
North Sea, Trinidad and Tobago, and India. The company is turning
to new projects and acquisitions to try to generate growth again,
hoping to boost production by a third in the next three years.
"You're starting to see the benefits," Mr. Gilvary said.
Write to Michael Amon at michael.amon@wsj.com
(END) Dow Jones Newswires
August 01, 2017 04:56 ET (08:56 GMT)
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