BP BP Plc

By Selina Williams 

LONDON--BP PLC on Tuesday said a two-year oil price slump and the 2010 Gulf of Mexico oil spill were exacting a punishing toll, sending the company to its third straight quarterly loss.

The British oil giant said it posted a $2.25 billion net loss in the second quarter of 2016, in the first of a series of earnings disclosures from large Western oil companies this week. The results were panned by analysts, and investors sent BP's shares down as much as 3.2% on Tuesday morning.

The results demonstrated how difficult it is for BP to turn the corner on the Deepwater Horizon explosion, which cost the company another $5.2 billion pretax accounting charge in the second quarter. The company said its total bill is now $61.6 billion for a disaster that killed 11 rig workers and spilled millions of barrels of oil into the Gulf.

The company on Tuesday pointed to new projects that will increase its production by 800,000 barrels of oil equivalent a day by 2020, part of its effort to emphasize a renewed focus on growth following years of asset sales and shrunken ambitions following the Gulf spill.

The disaster, also known as the Macondo well blowout, isn't expected to materially affect BP's profits in the future, the company said, with all of the litigation, government fines and cleanup costs accounted for.

"It's a huge relief after six years," Chief Executive Bob Dudley said in an interview.

"The company is able to plan--with much more certainty," said Mr. Dudley, who was installed to steer the company through the crisis and said he had no plans to step aside now that the company was looking past the spill's fallout.

But Tuesday's disclosures revealed ominous near-term signals for BP and other big, integrated oil companies.

BP said profit margins at its refineries were at their lowest levels since 2010, casting a pall over what was once a bright spot in the struggling industry. Refineries tend to make money during periods of low oil prices, because they can buy crude cheap and sell fuel products for higher margins.

BP's exploration and production division--normally its most profitable unit when oil prices are higher--continued to bleed money, losing $109 million before tax and interest in the quarter.

Flagging oil prices loom over BP and other energy companies as they move into the second half of the year, when many were counting on the market to recover.

In the second quarter of 2016, Brent oil prices averaged $46 a barrel, compared with $62 a barrel in the same period a year earlier. Overall, prices are down about 60% from their peak in 2014, when they were more than $100 a barrel.

A rally that lifted prices from a 13-year low near $27 a barrel in January to over $50 a barrel this spring has stalled. Prices were falling further on Tuesday morning in London, with Brent crude trading at $44.45 a barrel.

However, Mr. Dudley struck a more bullish tone than he had last year, saying that he expected oil prices of between $50 to $60 a barrel next year as the crude oil market tightens and a gasoline glut is mopped up.

"We're not as pessimistic as some," he said.

His comments echo those from the world's two biggest oil service companies, Schlumberger Ltd. and Halliburton Co., which last week called the bottom of the market, indicating that the industry is starting to look to a recovery despite recent volatility.

BP said it had made progress in cutting costs. Over the past four quarters, the company said, its cash costs were about $5.6 billion lower than in 2014. By 2017, the company expects its cash costs will be $7 billion lower than 2014, a year when most companies had budgets based on prices of $100 a barrel.

BP's $2.25 billion loss--on a net replacement-cost basis, analogous to the net income that U.S. oil companies report--was less than its $6.27 billion loss in the second quarter of 2015, when it also was hit by charges for Deepwater Horizon.

But analysts had expected better results. Even stripping out one-off charges such as the Deepwater Horizon losses, the company's underlying earnings of $720 million were around 45% lower than BP's underlying earnings of $1.31 billion in the second quarter a year ago. Six analysts polled by Dow Jones Newswires had predicted underlying earnings of $839 million.

Write to Selina Williams at selina.williams@wsj.com

(END) Dow Jones Newswires

July 26, 2016 08:33 ET (12:33 GMT)

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