BP BP Plc

By Sarah Kent 

LONDON--BP PLC's fatal blowout in the Gulf of Mexico in 2010 continues to haunt the company, helping to drag its quarterly earnings into a second consecutive loss and overshadowing cost cuts the British oil giant made to cope with low oil prices.

BP on Tuesday said its replacement-cost loss--a number analogous to the net income that U.S. oil companies report--was $485 million for the first quarter of 2016, hurt by weak oil prices and a $917 million pretax charge relating to the Deepwater Horizon explosion that killed 11 workers and caused a massive spill in the Gulf of Mexico.

To date, BP has paid $56.4 billion before taxes for charges relating to the incident at its Macondo oil well. Earlier this month, a U.S. judge approved a $20 billion settlement of all federal and state claims arising from the accident, resolving years of litigation and uncertainty, but also leaving the company with an annual liability of around $1 billion stretching out over roughly two decades.

The company still faces additional civil litigation costs related to the disaster, though the settlement removed significant uncertainties over the ultimate cost.

The continuing fallout from the massive spill is weighing on the company during an exceptionally difficult period for the energy sector. A glut in global crude supply has led to a nearly two-year slump in prices, dragging down earnings across the industry and forcing painful spending cuts.

BP suffered its second consecutive quarterly loss in the first quarter of 2016, as oil prices plummeted to a 13-year low in January. Throughout the quarter, Brent oil prices averaged $34 a barrel, compared with $54 a barrel in the same period last year. Refining margins were at their lowest quarterly average for over five years.

However, the company's underlying earnings--which strip out one-time items like impairment charges--were resilient, helped by efforts to bring down costs. BP reported underlying profit of $532 million for the first quarter, significantly beating analysts' consensus forecast for a loss of $140 million.

The underlying profit was strong despite a precipitous drop in revenue, which fell to $39.2 billion in the first three months of 2016, from $56.2 billion during the same period of 2015.

BP said it now expects its capital expenditure to total around $17 billion this year, the lower end of its previous guidance. By next year it expects its cash costs to be $7 billion lower than in 2014, allowing the company to balance its spending and cash flow at oil prices of $50 to $55 a barrel.

"Despite the challenging environment, we are driving toward our near-term goal of rebalancing BP's cash flows," Chief Executive Bob Dudley said. "Operational performance is strong and our work to reset costs has considerable momentum and is delivering results."

BP's stock was up 3.2% in early trading in London following the results.

BP's "progress on cost reductions is apparent in the results," said Jason Gammel, a European oil analyst with the investment bank Jefferies, though he said in a note that the company's cash flow was lower than expected.

Corrections & Amplifications

Brent oil prices in the first quarter of 2016 averaged $34 a barrel. An earlier version of this article incorrectly stated the time period as the first quarter of 2015. (April 26, 2016)

Write to Sarah Kent at sarah.kent@wsj.com

(END) Dow Jones Newswires

April 26, 2016 04:58 ET (08:58 GMT)

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