By Sarah Kent
LONDON-- BP PLC swung to a $6.3 billion loss in 2015's second
quarter, with low oil prices and a massive charge for settling the
Gulf of Mexico spill battering the company's profits as it tries to
chart a forward course.
The U.K. oil giant framed the $10 billion pretax charge as a
necessary step to getting BP back on track after five difficult
years since the Macondo well blew, killing 11 workers on the
Deepwater Horizon rig and spewing millions of barrels of oil into
the Gulf. The agreement announced earlier this month settles all
claims by the U.S. federal government and five states, giving BP a
measure of certainty over the size of its liabilities.
Less burdened by the Gulf spill, BP Chief Executive Bob Dudley
said the company had an opportunity to plan for the future rather
than constantly looking to the past.
"While the number is huge, it does mean we can plan now, which
is a state we haven't really been in for the past five years," Mr.
Dudley said.
But BP's financial results--the first second-quarter earnings
reported by the world's biggest independent energy
companies--pointed to substantial headwinds for a global oil
industry that has been upended by crude prices that began nose
diving a year ago.
Its replacement-cost loss of $6.3 billion--a measure similar to
net income reported by U.S. companies--was down from a $3.2 billion
profit in last year's second quarter. The losses were steepest in
the oil exploration and production division known as upstream,
which reported pretax earnings of $400 million, down from $4
billion a year earlier.
The results came as oil prices entered bear market territory
again, resuming a slide that began a year ago when Brent, the
global benchmark crude, traded at highs of $114 a barrel. It
plunged to less than $50 a barrel by January and, after a brief
rebound to the high $60s, was trading less than $53 on Tuesday.
BP executives said they expected oil prices to fall further, as
global supplies of oil continue to outpace demand by large amounts
every day. U.S. production has remained resilient, the Organization
of Petroleum Exporting is pumping at near-record levels, and Iran
could fully re-enter the export market next year when sanctions are
lifted as part of a nuclear agreement with world powers.
Mr. Dudley called $100 a barrel "an aberration."
"It's a really tough time for the industry. It does feel like
1986," he added, referring to the oil price slump that hit the
industry in the 1980s.
With prices so low, the company's new focus on the future won't
amount to a significant shift in strategy. Mr. Dudley said the
company would continue to contain spending while moving ahead with
high-value projects, such as its fields in Russia, and implementing
plans to increase natural-gas output.
It is also unlikely BP will follow the deal-making of its rival,
Anglo-Dutch giant Royal Dutch Shell PLC, which bought BG Group PLC
for $70 million this year.
"I think it would be unwise for BP to state it needs to go out
and make acquisitions. I think we need to get our house in order,"
Mr. Dudley said.
For BP, it was the second quarterly loss in the past six months,
reflecting how deeply the oil-price slide has affected its
operations and the mounting cost the Deepwater Horizon spill
continues to exact.
The one-time Deepwater Horizon settlement charge brings the cost
of the spill to almost $55 billion for BP. It has sold off more
than $40 billion in assets to raise cash and is moving forward with
a plan to sell even more for oil-spill cleanup and legal costs. The
company remains embroiled in lawsuits relating to the spill, but
the deal settles the largest claims against the oil giant. Now it
faces steady payouts totaling $18.7 billion over 18 years.
The company has slashed spending this year, delaying projects
with reserves over 3.5 billion barrels of oil and gas--more than
any other big independent energy company, according to Wood
Mackenzie. Its free cash flow doesn't cover its dividend, which the
company maintained at 10 cents a share.
Lower oil prices had a particular impact on BP's earnings from
its stake in state-owned Russian oil company OAO Rosneft. Its
underlying net income from the company fell by nearly 50% in the
second quarter of 2015 to $510 million from $1 billion a year
earlier. Its annual dividend from Rosneft fell to $271 million,
down from $693 million last July.
Still, the company remains committed to Russia, attracted by the
comparatively low costs of onshore production there. Last month,
the company bought a 20% stake in an East Siberian oil company from
Rosneft.
BP's upstream results were also affected by a $600 million
charge relating to its exploration activities in Libya, where the
company has been unable to operate because of political upheaval
amid a continuing armed conflict.
Despite the tough environment created by low oil prices, BP did
receive some support over the last quarter from its refining arm.
Refineries have enjoyed months of extraordinarily high margins
thanks to weak crude prices and rising demand. BP's downstream
business, which includes refining and marketing, saw pretax
earnings increase by nearly 75% in the second quarter to $1.6
billion compared with $933 million a year earlier.
Write to Sarah Kent at sarah.kent@wsj.com
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