BP Plc Tuesday reported lower than expected earnings for the second quarter as it struggled to lift production in the wake of the Gulf of Mexico oil spill.
Although the actual costs of the spill diminished, the fallout from the disaster continued to weigh on output, down 11 per cent from pre-spill levels. The company said the damage to its reputation could have a long-lasting impact on its prospects.
BP reported a net profit of $5.6 billion (Dh20.25 billion) for the three months ending on June 30, compared with a loss of $17.2 billion a year earlier.
Replacement cost profit, a closely watched industry benchmark, was $5.3 billion compared with a loss of $17 billion a year earlier. The second quarter result was lower than the average analyst forecast of about $6 billion.
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Last year's earnings were hit by a $32-billion charge for responding to the Gulf of Mexico crisis.
The lower-than-expected profit hit BP's shares. They were trading 2.5 per cent lower at 463.45 pence ($7.58) as trading opened on the London Stock Exchange.
"In our opinion the key factor for investor sentiment is the long-term actions to restore the lost shareholder value," said Tony Shepard, analyst at Charles Stanley & Co. He said investors are waiting for an update on the company's strategy following the collapse of its Arctic exploration deal with Russia's Rosneft.
Richard Griffith, analyst at Evolution Securities, said BP's recovery was on track and affirmed a "buy" rating on the shares.
BP said it has so far paid $6.8 billion for economic and environmental restoration in the Gulf of Mexico, including $5.1 billion from a $20 billion trust fund to settle individual claims.
In the second quarter, payments from the trust fund totaled $2.1 billion, including $873 million to individual and business claimants.
The company said the majority of the cleanup on the US Gulf coast was completed in the first three months of the year, while "limited" work continued on marshes and barrier islands. No further work is planned on the seabed, BP said.
The company acknowledged that "the Gulf of Mexico oil spill has damaged BP's reputation, which may have a long-term impact on the group's ability to access new opportunities, both in the US and elsewhere".
In the short-term, the disaster has had a clear impact on BP's production levels.
During the second quarter, its oil and gas production was 3.43 million barrels of oil equivalent a day, down 11 percent from a year earlier, BP said that primarily reflected "the ongoing impacts to Gulf of Mexico production as a result of the suspension of drilling, and the continuing divestment programme".
Full-year production is expected to remain close to that level, BP said. Chief Executive Bob Dudley was upbeat about the company's prospects, saying he expects future cash flows to grow faster than output.