BP Warns Spill Could Cost $40 Billion

Company has already divested $14 billion compared with a target of $25 to $30 billion by the end of 2011

The oil spill disaster in the Gulf of Mexico could cost BP $40 billion, the company revealed on Nov. 2 with shock figures ramping up the bill by almost a quarter.

BP said it had taken an additional charge of $7.7 billion during the third quarter, taking the company's total estimated clean-up and legal costs to $39.9 billion. It added that its divestment program was making "good progress", with sales agreements in place totaling about $14 billion compared with a target of $25 to $30 billion by the end of 2011.

BP has meanwhile billed a subsidiary of Japanese trading house Mitsui & Co. up to $1.9 billion to cover costs from the Gulf of Mexico oil spill. Mitsui & Co. added that MOEX Offshore, wholly owned by a U.S .unit of Mitsui Oil Exploration Co., had withheld payment amid uncertainty "as to how to calculate the total claimed amount".

MOEX Offshore owns 10% of the Macondo project operated by BP, while U.S. firm Anadarko Petroleum Corp. owns a 25% interest and BP owns the rest.

"The update provides a stark reminder that the fallout from the spill will follow BP for some considerable time to come," said Richard Hunter, head of UK equities at Hargreaves Lansdown Stockbrokers in London. "It remains to be seen whether the renewed provision of 40 billion dollars will finally kill the issue or whether, as is also possible, it will prove to be an overestimation."

But the British oil giant also reported a net profit of $1.785 billion for the third quarter in contrast to a loss of $16.9 billion during the second quarter of this year, a huge turnaround.

BP's new chief executive Bob Dudley, who began the role only last month, said the latest earnings results showed the company was "well on track for recovery".

"We have made good progress during the quarter. This strong operating performance shows the determination of everyone at BP to move the company forward and rebuild confidence after the terrible events of the past six months," Dudley said.

"We have also begun to make important changes in the way we operate across the group ... to ensure that safety and risk management are embedded as the absolute priority for every operation, for every person, throughout BP."

Last week, Dudley insisted that BP would not quit the United States over the disaster that he said had "threatened the very existence" of the company.

US authorities have severely criticized BP over its handling of the spill, while the company is currently defending itself against tens of billions of dollars in potential U.S. fines and legal liabilities.

BP said on Nov. 2 that the additional pre-tax charge of $7.7 billion was mainly the result of increased costs for responding to the spill. "This reflected a delay in completing the relief well that finally sealed the Macondo well in September, additional mandated costs for decontaminating and demobilizing vessels involved in the response, claims center administration costs and additional legal costs," the company added.

Copyright Agence France-Presse, 2010

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