BP’s quarterly earnings fell 35 per cent on weaker oil and US natural gas prices and falling production.
The UK oil group reported adjusted profit of $3.7bn, compared with $5.7bn a year ago. The steep drop shows BP is still struggling to adjust more than two years after the Deepwater Horizon disaster
in the Gulf of Mexico.
Since taking the reins at BP in October 2010, chief executive Bob Dudley has made safety a top priority, significantly boosting BP’s maintenance programme. The latest results show that taking some of the company’s biggest oilfields out of commission for safety checks and turnrounds has hurt production and profits.
BP said the results reflected “extensive planned maintenance”, which particularly impacted its highly profitable production in the US Gulf of Mexico, as well as lower net income from its Russian joint venture TNK-BP.
Mr Dudley said the “weak” earnings were driven by a “combination of factors affecting the sector and BP specifically”. He cited the effects of movements in the price of oil and gas, as well as BP’s “extensive turnround and maintenance programme” which was designed to “enhance safety and reliability for the long term”.
All the oil supermajors’ quarterly earnings have reflected the drop in US natural gas prices, which fell to 10-year lows earlier this year because of a glut in supply brought on by the shale gas boom. Results for both Royal Dutch Shell and ExxonMobil were well below analysts’ expectations.
BP followed BG Group in writing down the value of its US shale gas assets. It said impairments totalled $4.8bn, though these included certain refineries in its portfolio and the decision to suspend a big oil project in Alaska.
BP’s production was 2.28m barrels a day, excluding TNK-BP – slightly down on last year. The company said production in the third quarter would be slightly lower again, due to maintenance, though production for the year would be broadly flat.
Mr Dudley insisted earnings momentum would build into 2013 as BP completed payments into the trust fund to compensate victims of the Gulf of Mexico spill, and as high-value production came back on line and new projects started up.
One significant drag on profits was TNK-BP, where net income was $700m lower than a year go. BP said this was due to the lag in Russian oil export duty, which was based on earlier higher oil prices.
BP announced in June that it was pursuing a sale of its 50 per cent stake in TNK-BP, a joint venture, with a group of billionaire oligarchs which has been hugely lucrative but plagued by a sequence of bruising corporate battles.
The company is in negotiations with both AAR, the consortium that owns the other half of TNK-BP, and Rosneft, Russia’s state oil company.