UK oil company BP reported Tuesday a worse-than-expected second quarter net profit of $2 billion, as lower oil prices, higher taxes and a drop in income from its operations in Russia took their toll on the company.
The net profit, although up from a loss of $1.5 billion in the same period of last year, missed analyst expectations of $2.56 billion, according to Factset. Underlying replacement cost profit, which strips out the changes in the value of inventories, was down 23 percent from the same time last year, at $2.71 billion.
The company attributed its higher tax bill mainly to the impact of the stronger dollar. It added that the fall in value of the Russian ruble and a lag in export duty had also adversely affected its bottom line.
BP PLC also made more provisions for the 2010 oil spill in the Gulf of Mexico, increasing the total by about $200 million to $42.4 billion. Of those total provisions set aside, $9.6 billion were earmarked to settle damage claims, an increase of $1.4 billion.
CEO Bob Dudley insisted that the company would fight for the rights of its shareholders, and that it would fight claims it believes are absurd. The company argues that a judge and court-appointed claims administrator have misinterpreted its multibillion-dollar settlement with a team of private attorneys, allowing some Gulf Coast businesses to receive payments for inflated or fictitious claims.
Dudley told analysts and investors on a conference call Tuesday that the company was prepared to fight for the long haul.
“It’s just the right and principled thing to do,” Dudley said.
On July 19, U.S. District Judge Carl Barbier rejected BP’s request to temporarily shut down the settlement program, saying he has seen no evidence of widespread fraud among the tens of thousands of claims.
BP had argued that all payments to Gulf Coast residents and businesses should be suspended while former FBI Director Louis Freeh investigates alleged misconduct by a lawyer who worked for claims administrator Patrick Juneau on the settlement program.
But Dudley said BP wants to do the right thing.
“We remain committed to paying all legitimate claims,” he said.
The April 2010 explosion on the Deepwater Horizon drilling rig killed 11 workers and released millions of gallons of oil into the gulf, wreaking economic and environmental damage across several southern states.
Dudley said in a statement that the earnings results showed a strong pre-tax performance. BP’s operations are “seeing growth in production from new high-margin projects and are making good progress in exploration and project delivery,” he said.
Keith Bowman, equity analyst at Hargreaves Lansdown Stockbrokers, says BP’s new production ventures have moved forward in Brazil, India and the South China Sea.
“In all, BP is a company trying to look forward but remaining firmly anchored to the past,” Bowman said. “A full resolution of its Gulf of Mexico accident is still in the balance, whilst both BP and the wider industry remain hostage to uncontrollable factors such as the oil price, government appetite for tax revenues and the strength of the broader global economy.”