BP profits fall in second quarter: Oil giant BP has suffered a second-quarter fall in profits as oil prices fall and refining margins decrease. Although analysts expected BP to make a loss this quarter, it published a profit of $532 million, adjusted for one-time items and inventory changes. This compares with the $2.6 billion for the same period last year.
The company has also agreed a final payment for the 2010 Deepwater Horizon disaster that ultimately cost it $61.6 billion. This profit level comes as a surprise to analysts who expected a weaker performance in view of the falling crude prices. The company has benefited from the cost reductions and restructuring it carried out to tackle the issue of falling oil prices.
CEO Bob Dudley stated that BP is continuing to reduce costs in order to keep paying its shareholders dividends. He stated that the BP profits should improve and that the company would be able to balance cash flow with capital expenditure and payments to shareholders at a crude price of $50 – $55 a barrel. There may be issues if prices drop below that figure – but every other oil company would also suffer from such low prices. BP’s previous estimate was $60/barrel.
BP is able to reduce capital spending even further if it became necessary due to a continued low oil price. Dudley stated that BOP could reduce investment to as low as $15 in 2017 should it become necessary. Investment in 2016 will be $17 billion.
Brent crude slumped to under $12 a barrel in January, and while that low figure cut earnings from production, it also reduced the price of crude used in the company’s refineries. Adjusted BP profits from downstream operations before interest and tax was $1.8 billion. This was lower than the same period last year, but 49% higher than Jan-March.
Upstream operations involving oil and gas production lost $747 million compared with a profit last year of $604 million. This loss was 13% lower than expected while downstream profits were 60% higher than expected much of this due to trading.
BP’s reaction to the 2010 Deepwater Horizon disaster in the Gulf of Mexico was to slash costs and sell assets to help pay the final settlement of $20.8 billion agreed this month. This sum is to be paid over a period of 17 years, and BP is now free to plan without uncertainty about its financial obligations. BP profits should then improve significantly.
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