British oil giant BP has swung to a loss in its second quarter 2015 results due to low oil prices and charges related to the Deepwater Horizon claims.
According to BP, underlying replacement cost profit for the quarter was $1.3 billion, compared with $2.6 billion for the previous quarter and $3.6 billion for the second quarter of 2014.
According to BP, the result reflected the impact of continued low oil and gas prices, a reduced contribution from Rosneft, and one-off charges arising from circumstances in Libya, but also continuing strong earnings from BP’s downstream businesses and lower cash costs throughout the Group.
Following the announcement on July 2, 2015, that BP had reached agreements in principle to settle all outstanding federal and state claims and claims made by more than 400 local government entities arising from the 2010 Deepwater Horizon oil spill, an additional non-operating pre-tax charge of $9.8 billion was included in the result for the second quarter. As a result of this charge, together with other non-operating items and fair value accounting effects, BP reported a replacement cost loss for the quarter of $6.3 billion.
Bob Dudley, BP’s Group Chief Executive, said: “The external environment remains challenging, but BP moved quickly in response and we continue to do so. Our work to increase efficiency and reduce costs is embedding sustainable benefits throughout the Group and we continue with capital discipline and divestments.”
In the second quarter the Brent crude price averaged $62 a barrel, compared with $54 a barrel in the first quarter and $110 a barrel in 2Q 2014. In the third quarter to date, the price has averaged [$58] a barrel.
“In the past few weeks oil prices have fallen back in response to continued oversupply and market weakness and the recent agreements regarding Iran. I am confident that positioning BP for a period of weaker prices is the right course to take, and will serve the company well for the future,” said Dudley.
Deepwater Horizon charges
In the quarter BP took a charge of $10.8 billion in total related to the Gulf of Mexico oil spill – including $9.8 billion associated with the government settlements as well as charges for further business economic loss claims and other ongoing costs. The total cumulative pre-tax charge for the incident is now $54.6 billion.
Following the agreements in principle announced on July 2, 2015, BP has now advised the Court that it is satisfied with and has accepted releases received from the vast majority of local government entities. Accordingly, on July 27, the District Court ordered BP to start processing payments required under the releases and that such payments be made within 30 days of the Court’s order. As part of the agreements in principle, BP agreed to pay up to $1 billion to resolve claims made by local government entities.