BP profits slump after huge oil spill charge

Tue Jul 28, 2015 8:55am EDT
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By Ron Bousso and Karolin Schaps

LONDON (Reuters) - BP's (BP.L: Quote) second-quarter profit slumped by nearly two thirds from last year as it grappled with lower oil prices, a write off in Libya and a $10.8 billion charge for the 2010 crude spill in the Gulf of Mexico.

Expecting a prolonged period of lower crude prices, the British oil and gas company also cut its capital spending plans for this year for a second time to below $20 billion from $22.9 billion last year. Norwegian rival Statoil (STL.OL: Quote) announced more spending cuts too.

BP's Chief Financial Officer Brian Gilvary said he expected oil prices LCOc1, which fell on Tuesday to their lowest since February below $53 a barrel, to remain soft in the medium term because of a supply glut worldwide.

BP reached an $18.7 billion agreement with the U.S. government and five states earlier this month to resolve most claims from the oil spill five years ago, the largest corporate settlement in U.S. history.

While BP had been expected to take a $10 billion hit at some point, it also agreed to pay up to $1 billion to resolve claims from some local government bodies, taking cumulative pretax charges for the Macondo rig explosion and spill that killed 11 workers to a massive $55 billion.

Profits were also hit by a $600 million exploration write off in Libya because of security issues. Overall, BP's underlying replacement cost profit, the company's definition of net income, came in at $1.3 billion, below analysts expectations of $1.64 billion and down from $3.6 billion a year earlier.

Still, BP shares rose 1.7 percent in London by 1248 GMT slightly outperforming a 1.3 percent gain for the European oil and gas sector index .

"Cost cutting is being delivered and capex is coming in lower than previous guidance which are positives, together with the fact that Macondo is now behind us," said analysts at Bernstein, who have a "market perform" rating on the stock.   Continued...

A BP logo is seen at a petrol station in London January 15, 2015.     REUTERS/Luke MacGregor/Files