BP chief executive officer Bob Dudley denied the company had lost its way, after it unveiled disappointing earnings hit by falling production, a big writedown of its U.S. shale gas assets and tax issues in Russia.
The British oil group reported adjusted profit of $3.7-billion (U.S.), compared with $5.7-billion a year ago – a 35-per-cent drop. The results came in well below analysts estimates.
Like Royal Dutch Shell and ExxonMobil, which reported last week, BP was weighed down by falling crude and U.S. natural gas prices – a result of a supply glut caused by the boom in North American shale gas.
But the British group’s results were significantly worse than those of its peers. BP’s shares were trading down 4.4 per cent at midday on Tuesday.
The poor performance shows BP still struggling to recover from the 2010 Deepwater Horizon disaster in the Gulf of Mexico and will increase the pressure on Mr. Dudley, who has been criticised by shareholders for a lack of strategic direction.
Last October, Mr. Dudley famously said that BP had turned a corner. But Tuesday’s results show a full recovery remains far off.
Jason Gammel of Macquarie called them “lacklustre at best.” “Every single operational segment was disappointing,” he said.
Mr. Dudley denied that reflected a broader malaise at BP. “I don’t think the company’s losing its way whatsoever,” he told reporters. He insisted it was “heading in the right direction for the long term.”
BP has sought to keep investors focused on its core strategy of delivering a 50-per-cent increase in cash flow by 2014, compared to 2011. It said earnings momentum will build into next year as it completes payments into the trust fund to compensate victims of the Gulf spill and as high-value production comes back on line and new projects start up.
But Mr. Dudley admitted that BP would “continue to have a higher level of uncertainty” until it achieved clarity on the full scale of its spill-related liabilities and the sale of its 50-per-cent stake in TNK-BP, its Russian joint venture, which it announced it was selling in June. Analysts do not expect it to resolve either issue until the fourth quarter.
BP said its quarterly earnings reflected “extensive planned maintenance,” which particularly affected its highly profitable production in the U.S. Gulf of Mexico. Production excluding TNK-BP slipped 7.4 per cent to 2.3 million barrels a day, and BP warned it would be even lower in the third quarter due to seasonal turnrounds – though it would be broadly flat for the year.
One significant drag on profits was TNK-BP, where net income was $700-million lower than a year ago. BP said this was due to the lag in Russian oil export duty, which takes time to catch up with falling oil prices.
BP took an impairment charge of $4.8-billion, which included a writedown of its U.S. shale gas assets and its U.S. refineries, as well as the suspension of a big oil project in Alaska. Mr. Dudley said BP was in discussions with a “number of parties” on the sale of its Texas City and Carson refineries in the U.S.
The company also increased its provision for costs arising from the Gulf of Mexico spill by $847-million, bringing the total set aside to $38-billion.