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BP Plunges Into Net Loss on Huge $5 Billion Writedown

Company sites weaker oil and U.S. gas prices together with reductions in output due to extensive planned maintenance, particularly affecting high-margin production from the Gulf of Mexico, and lower net income from (Russian joint-venture) TNK-BP.

 

Hit by lower output, falling oil prices and a $5 writedown on the value of assets, BP (IW1000/3) said Tuesday that it suffered a net loss in the second-quarter.  The after tax loss was $1.39 billion in the three months to June, compared with net profit of $5.72 billion in the year-earlier period.

The energy major was hit by an impairment charge of $4.78 billion on the value of U.S. assets, including certain refineries, shale gas assets and its decision to suspend the Liberty offshore oil project in Alaska.

Total production fell 7.4% to 2.28 million barrels of oil equivalent a day on the back of asset sales and a heavy maintenance program in the Gulf of Mexico. Revenue dipped 8% to $94.89 billion.

"We recognize this was a weak earnings quarter, driven by a combination of factors affecting both the sector and BP specifically," CEO Bob Dudley said.

"The effects of price movements have impacted our earnings in the quarter," he added.

Adjusted earnings, stripping out changes in the value of inventories and other exceptional items like writedowns, sank 35% to $3.69 billion.

"Compared to the previous quarter, the underlying results were depressed by weaker oil and U.S. gas prices together with reductions in output due to extensive planned maintenance, particularly affecting high-margin production from the Gulf of Mexico, and lower net income from (Russian joint-venture) TNK-BP," BP said.

"Weaker oil and gas prices, impairments including a major writedown on U.S. shale assets and reduced production due to planned maintenance have all conspired to depress profits and shareholders alike," noted analyst Richard Hunter at Hargreaves Lansdown Stockbrokers.

The London-listed company is still attempting to turn around its fortunes around after the devastating Gulf of Mexico oil spill disaster in 2010.

"Our extensive turnaround and maintenance program, which will continue into the third quarter, is also affecting some aspects of our near term results," Dudley said.

"All of this will take time but it is important investment that will enhance safety and reliability for the long term. As we deliver this major transformation, we are also committed to generating sustainable efficiencies in our operations."

The group also forecast that its third-quarter production would drop, partly due to the ongoing $38-billion divestment program that is aimed at meeting the bill for the Gulf of Mexico spill.

"Looking ahead we expect third-quarter reported production to be slightly lower than the second quarter as a result of ongoing seasonal turnaround activity across the portfolio, including in higher margin regions such as the UK North Sea, and the continuation of the divestment program."

The Gulf of Mexico oil disaster was caused by an explosion on the BP-leased Deepwater Horizon rig that killed 11 workers, spewed millions of barrels of crude into the sea and left the group with huge compensation costs.

Copyright Agence France-Presse, 2012 

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