BP struggles in Gulf oil spill, Russian spider’s web
A file photograph showing relief oil rigs in the Gulf of Mexico, 22 May 2010. | EPA/LYLE W. RATLIFF
Struggling under the weight of litigation over the 2010 US Gulf oil spill and a row with its Russian billionaire partners in TNK-BP, BP’s profits plunged to just $238mn for the second quarter. BP said both oil production and refining margins fell in the second quarter and would fall again in the third.
On 30 July, the British company’s co-owners of TNK-BP blocked the payment of dividends from the business that provides 29% of BP’s output, increasing uncertainty over the company. BP is in talks with its oligarch partners in TNK-BP and with Russia’s state oil company Rosneft over a possible sale of its stake in the venture.
“It is still going to be a serious source of concern for BP until they can get the clarity on this because they find it very difficult to get a clear extraction from Rosneft and the whole Russian escapade,” Justin Urquhart Stewart, Director of Seven Investment Management, told New Europe on 1 August.
The London-based analyst added that BP is still struggling two years after mopping up its disastrous Gulf of Mexico oil spill. “As we know and we all expected the Gulf of Mexico has a long tail to it so although one can take some comfort like the shareholders things are improving like a fly in a spider’s web they find it very difficult to get their winds free of it,” Urquhart Stewart said.
BP’s one-off losses included $847mn for increased costs and litigation related to the Gulf disaster, bringing the total set aside for the disaster to $38bn, or well over two years’ worth of profits at current prices.
Investors are hoping for a deal with US authorities before the US elections, but BP said it still sees a “significant uncertainty” over US oil spill obligations. Urquhart Stewart said any deal between the British company and the US authorities was unlikely since the case is “far too politically sensitive in the states”. “If I were BP, I’d be writing off the rest of this year and try to be more constructive next year to have the Gulf behind me and find myself flying free from Russia,” he said.
But BP Chief Executive Bob Dudley said BP looked forward “to continuing to play a role in Russia’s energy future” and said it had “a lot to bring” to Russia. It was “very possible” that no sale of its TNK-BP stake might materialise, he said.
He acknowledged there was disquiet among shareholders over a number of issues, and that the fate of TNK-BP and the prospect of a settlement with US authorities over the Gulf disaster were the two biggest uncertainties, but insisted BP was “not distracted” by those events.
BP’s losses also included $2.7bn impairments on refineries, primarily in the US. A further $2.1bn impairment charge related to writedowns of US shale gas assets and the decision to suspend the Liberty oil project in Alaska after new safety standards inflated costs.
BP’s underlying profits also suffered from the fall in the oil and gas prices.
Dudley admitted it had been a “weak earnings quarter” but insisted: “I do not think the company is losing its way.” BP had “faced some tough conditions but is heading in the right direction for the long-term,” he said.
Regarding extensive maintenance work, particularly on production in the Gulf of Mexico, Dudley said this was “important investment” in long-term safety and insisted he would not “step on the accelerator to bump up performance” at the expense of safety./new europe on line.
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