BP posts 64% decline in second-quarter profits

BP has reported a 64% slump quarterly profits as the low oil price and fallout from the 2010 Gulf of Mexico oil spill continued to dent its takings.

In trading update on Tuesday, the company said second-quarter replacement cost profit came in at $1.31bn, compared to $3.63bn recorded over the corresponding quarter last year.

The figure was well short of the $1.66bn called by analysts. The replacement cost profit measure takes into account fluctuations in the price of oil reconciling it against takings, and is used across the US dollar sensitive oil and gas industry to report earnings.

After allocating another $7.5bn towards costs relating to the 2010 oil spill, the company recorded an actual loss of $6.26bn.

On 2 July, BP reached an $18.7bn settlement with US Department of Justice over the Deepwater Horizon oil spill, with disbursal of the said amount spread over 18 years. The development prompted ratings agency Moody's to upgrade its outlook on the company from 'negative' to 'positive'.

With BP budgeting for a $60 a barrel oil price for the next three financial years, headline capital expenditure is expected to be less than $20 billion for the current year. However, cash costs for the year to date are currently $1.7bn below the corresponding quarter last year, as the company's cost cutting measures continue.

Societe Generale argued that while the headline numbers missed consensus, this was due to a material non-cash exploration write-off of circa $800m, half of which was due to force majeure events in Libya. "Thus underlying upstream performance, adding back the write-offs, was of the order of $1.2bn-$1.3bn and thus ahead of consensus."