BP PLC posted a 16 per cent rise in first-quarter net profits as gains from the sale of major assets to pay for the Gulf of Mexico oil spill outweighed the ongoing cost of that disaster.
But replacement cost profit, the measure most closely watched by analysts to indicate an oil company’s health, fell 2 per cent as lower production and higher charges from the spill overrode the benefits of a rising crude oil price.
Net earnings of $7.2 billion for the three months to 31 March compared with $6.2 billion for the same period a year earlier. Revenue rose 18 per cent to $88.3 billion after the company sold off more than $24 billion in assets to pay for the Gulf spill.
Those asset sales led to a fall in production, however, lowering replacement cost profit to $5.48 billion. The measure is closely watched by analysts because it excludes changes in the value of crude inventories and measures the amount it would cost to replace assets at current prices. It also excludes one-offs such as asset sales.
Chief Executive Bob Dudley has been targeting higher growth exploration to reverse a 30 per cent drop in BP’s share price since the April 20, 2010, explosion on the Deepwater Horizon rig, which killed 11 men and caused the biggest offshore oil leak in US history.
The stock price was up 0.6 per cent at $7.68 in early trade on the London Stock Exchange.
The catastrophe in the Gulf caused BP to plunge to its first full-year loss in almost 20 years in 2010 and forced the resignation of chief executive Tony Hayward, who was at the helm when the disaster happened.
The first quarter results include a $400 million pretax charge for the oil spill, adding to $40.9 billion set aside by the company last year.
BP last week sued Transocean, the owner of the rig, and contractor Halliburton, for around $40 billion each in damages, based on its estimates of its liabilities.
But the court cases are likely to take years and BP could face tens of billions of dollars more in fines and penalties if it is prosecuted.
In the meantime, production levels have fallen as the London-based company sold oil fields and refineries and US regulators banned further drilling in the Gulf of Mexico.
BP said that production for the first quarter was 3.58 million barrels of oil equivalent per day, an 11 per cent drop on the first quarter of 2010. However, it said that fall shrank to 7 per cent after adjusting for the effect of acquisitions and divestments and entitlement impacts in its production-sharing agreements.
Most of the decrease in production was weighted toward the company’s highest margin areas, and primarily reflected the impact to Gulf production because of the drilling moratorium, higher turnaround and maintenance activity in the North Sea and in Angola and an interruption to the Trans-Alaska Pipeline System.
Ranged against that production decline was a fire sale of assets, including a $7 billion deal with Apache Corp. that offloaded properties in the US, Canada and Egypt, that has so far brought in some $24 billion to help pay for the Gulf spill.
With its future in the US uncertain, BP has signed energy exploration agreements in Indonesia, China, India and Australia. Most notably, it agreed to pay India’s Reliance Industries $7.2 billion for a stake in key oil and gas blocks.
However, its attempts to move into new ground hit a stumbling block in Russia. The company is seeking a $16 billion share swap with Russia’s state-backed OAO Rosneft but the deal was tied up in legal red tape after a dispute with BP’s shareholders in its other Russian venture.
A quartet of Russian billionaires, BP’s partners in the older TNK-BP venture, won an injunction in the London courts, claiming the new deal violates their own agreement with the London-based company.
BP gained some critical breathing room on the Russian problem just hours before its annual general meeting last week when Rosneft agreed to move the deadline to complete the deal to May 16.
The company also announced Wednesday that it would pay a dividend of 7 cents per share in June, half the size of the dividend it paid out to shareholders for the same quarter in 2010.
The company suspended its dividend for nine months following political and public pressure, reinstating a 7 cent per share payout for the final quarter of 2010. The BP dividend has wider significance in Britain, where it accounts for one pound in every six invested by pension plans.
Including the impact of the Gulf spill, net cash provided by operating activities for the first quarter was $2.4 billion, compared with $7.7 billion in the same period of last year.