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 progress on cost cuts that caused the firm's shares to jump over 4%.

BP on Tuesday said its earnings took a $917 million hit in the first quarter related to the Deepwater Horizon explosion that killed 11 workers and caused a massive spill in the Gulf of Mexico, a disaster that changed the course of the British oil giant and cost the company $56.4 billion to date.

The additional spill costs and the weakest oil prices in over a decade cast a cloud over BP's financial performance, despite signs that heartened investors.

Counting the Deepwater Horizon costs, BP said its equivalent of net earnings was a $485 million quarterly loss. Stripping out those and other one-time charges, BP had a profit of $532 million in the first quarter, significantly beating analysts' consensus forecast for a loss of $140 million.

The spill forced the company to sell more than $40 billion in assets, pull back its ambitions and craft the business around a smaller set of high-value oil and gas fields.

A roughly $20 billion settlement with the U.S. government--given final approval by a judge this month--resolved nearly all legal claims arising from the accident. But the company still faces additional civil litigation and ongoing costs related to the disaster, including an annual liability of around $1 billion imposed by the settlement that stretches out over roughly two decades.

The most recent spill-related costs included $600 million related to business and economic loss claims the company hadn't previously provided for, as well as settlement costs for certain civil claims outside of a 2012 agreement on economic, property or medical damage claims.

BP said the charge reflected its efforts to accelerate procedures for processing such claims, but that it still can't "reliably estimate the remaining liability for these claims."

The ongoing fallout from the massive oil 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.

Oil prices hit a 13-year low during the first quarter, and Brent crude, the international benchmark, averaged $34 a barrel, compared with $54 a barrel in the same period a year earlier.

The slumping market has forced BP to make spending cuts that, though painful, helped the company make a profit when its earnings are adjusted to strip out one-time charges like spill costs.

BP said it now expects its capital expenditure to total around $17 billion this year, down from a peak of $25 billion in 2013. By next year it expects its cash costs to be $7 billion lower than for 2014, allowing the company to balance its spending and cash flow at oil prices of $50 to $55 a barrel. Over the past 12 months, costs are already down $4.6 billion compared to 2014.

"This progress underpins our commitment to sustaining BP's dividend as the first priority within our financial frame," Chief Financial Officer Brian Gilvary said in a news release. "Should prices remain low, we have the flexibility to adjust further within the financial framework."

The company has already announced plans to cut 7,000 jobs this year and in its first quarter results flagged the possibility that it could lower spending still further to $15 billion to $17 billion in 2017 if prices remain under pressure.

The company's dividend remains unchanged at 10 cents per ordinary share, although at its annual meeting in London earlier this month BP's chairman Carl-Henric Svanberg warned that adjustments to the company's shareholder payouts could be necessary if energy prices remain under pressure for longer than expected.

As in previous quarters, BP's refining and marketing arm helped cushion the impact of weak prices on its exploration and production business, despite profit margins for refineries that were at their lowest quarterly average in over five years. Lower costs, strong refining operations and good results from the company's trading business helped boost the division's pretax profit to $1.9 billion from $838 million in the fourth quarter of 2015.

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.

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

(END) Dow Jones Newswires

April 26, 2016 06:59 ET (10:59 GMT)

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