
BP's Second Quarter Disappoints as Refining Margins Shrink
BP (BP) - Get Report posted underlying replacement cost profit of $720 million for the second quarter, missing analyst predictions of about $840 million as an improvement in oil prices failed to compensate for weaker earnings from its refining business.
BP's oil and gas production operations returned to a slim underlying profit before tax of $29 million for the quarter, up from a loss of $747 million in the first quarter, as oil prices climbed to an average $46 a barrel over the quarter, up from $34 in the previous three months.
BP's downstream business, which includes refining, lubricants and petrochemical operations, saw underlying profit before tax fall to $1.5 billion, down from $1.8 billion in the first quarter.
BP shares traded Tuesday at 432.6 pence ($5.65), down 7.75 pence, or 1.8%, on their Monday close. The stock has gained almost 15% over the past quarter.
"The results...reflect a significantly weaker refining environment, partially offset by lower costs from simplification and efficiency programs," BP said. "Refining margins were the weakest for a second quarter since 2010."
Refining had been a bright spot in oil companies, earnings in recent quarters, and weaker margins will weigh on other oil majors results, including Total (TOT) - Get Report and Royal Dutch Shell () both of which report their quarterly figures on Thursday.
BP left its quarterly dividend unchanged at 10 cents per share, with the payment to be made on Sept. 16.
Britain's biggest oil producer's total replacement cost loss for the second quarter was $2.25 billion, compared with a loss of $485 million in the first quarter, after it booked a post-tax charge of $2.8 billion to cover claims relating to the deadly explosion and oil spill on its Deepwater Horizon rig in 2010.
The payment, which was announced earlier this month, is expected to cover remaining liabilities from the disaster and increases the total cost to BP of fines, clean-up charges and compensation to $61.6 billion.
"We are very pleased to have finally drawn a line under the material liabilities for Deepwater Horizon," BP CEO Bob Dudley said in a statement. "We will always be mindful of what we have learned from that tragic accident. BP today is a stronger, more focused and more disciplined company."
BP has spent the past two years shrinking as it sold about $50 billion of assets and cut exploration, and capital and operating costs to cope with both the payments relating to the disaster and historically low oil prices.
The company said that its capital costs for the current year would likely come in below its forecast of $17 billion, though there were no major new cost savings announcements.
"We continue to reset our capital and cost base and are moving steadily towards our aim of rebalancing organic sources and uses of cash by 2017 in a $50-55 per barrel oil price range," BP CFO Brian Gilvary said in a statement. "This underpins our confidence in sustaining our dividend going forward."









