BP’s second quarter profit slips on lower oil prices

BP CEO Bob Dudley

UK oil giant BP on Tuesday posted a lower profit for the second quarter of 2016 of $720 million on an underlying replacement cost basis, compared with $1.3 billion for the second quarter of 2015.

According to the oil company, compared with a year earlier, the underlying second quarter result was impacted by lower oil and gas prices and significantly lower refining margins, but this was partly offset by the benefit of lower cash costs throughout the group as well as lower exploration write-offs.

The Brent oil marker price averaged $46 a barrel in the second quarter, up from $34 in the first quarter but still significantly lower than $62 a year earlier. While improved from the previous quarter, refining margins were the weakest for a second quarter since 2010, BP said.

Underlying operating cash flow for the quarter – before pre-tax Gulf of Mexico payments – was $5.5 billion. This underlying cash flow resulted from continuing reliable operation of assets, BP explained.

BP’s cash costs over the past four quarters were around $5.6 billion lower than in 2014 and BP continues to expect these costs for 2017 to be $7 billion lower than in 2014. Organic capital expenditure for the first half of 2016 was $7.9 billion; full year 2016 capital expenditure is now expected to be below $17 billion.

BP on Tuesday announced an unchanged dividend for the quarter of 10 cents per ordinary share ($0.6 per ADS), expected to be paid in September.

 

Deepwater Horizon

 

Earlier in July BP announced that it had made progress in resolving outstanding claims from the Deepwater Horizon accident and oil spill, including claims associated with the Plaintiffs’ Steering Committee settlement and by individuals and businesses that opted out of and/or were excluded from that settlement.

The progress made in resolving the opt-out and excluded claims was confirmed by a court order of July 14, 2016. As a result, BP said it can now reliably estimate all remaining material liabilities in connection with the incident.

BP has taken a net post-tax non-operating charge in the quarter of $2.8 billion. This includes a pre-tax non-operating charge of $5.2 billion associated with the Deepwater Horizon liabilities and other positive tax credits. Including fair value accounting effects and inventory gains, this resulted in a reported loss for the quarter of $1.4 billion.

Including this quarter’s $5.2 billion pre-tax charge, the total cumulative pre-tax charge for the Deepwater Horizon incident is $61.6 billion. This now includes BP’s estimation of all material liabilities associated with the incident; any liabilities not covered by this charge are not expected to be material to BP.

Bob Dudley, BP group chief executive said: “We are very pleased to have finally drawn a line under the material liabilities for Deepwater Horizon. We will always be mindful of what we have learned from that tragic accident.”

Dudley added:“As we look forward we expect the external environment to remain challenging, but we have a strong pipeline of new projects which will add 500,000 barrels of oil equivalent a day of new production capacity by the end of next year. Beyond this lie further opportunities, including a number which we expect to deliver through innovative structures such as the recently announced Aker BP venture.”

The oil company’s production for the quarter was 2,090mboe/d, 1.0% lower than the second quarter of 2015.

Looking ahead, BP said it expects third-quarter reported production to be lower than the second quarter due to seasonal turnaround and maintenance activities and the impact of the plant outage at the Enterprise Pascagoula gas processing plant in the Gulf of Mexico.

Offshore Energy Today Staff

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