$1bn loss for BP as cost of oil spill keeps rising

BP, the UK oil giant, chalked up a loss of more than US$1 billion in just three months. The loss came after it took a $5 billion writedown and faced up to the ballooning cost of cleaning up its huge oil spill in the Gulf of Mexico.

BP, the UK oil giant, chalked up a loss of more than US$1 billion (Dh3.7bn) in just three months.

The loss came after it took a $5 billion writedown and faced up to the ballooning cost of cleaning up its huge oil spill in the Gulf of Mexico.

Europe's second-largest oil company posted a net loss after exceptional items of $1.4bn for the second quarter compared with a profit of $5bn in the same period a year earlier.

"We recognise this was a weak earnings quarter driven by a combination of factors affecting both the sector and BP specifically," said Bob Dudley, the company's chief executive. The company also revealed the cost of cleaning up after the oil spill in 2010 had increased to more than $38bn. BP has sold off assets worth $24bn since the Macondo blowout and plans to raise that to $38bn through sales by the end of next year.

Impairment charges totalled $4.8bn pre-tax, as it had to writedown the value of a US refinery and shale gas assets, and take into account the decision not to pursue the development of a 40,000 barrel per day (bpd) offshore field.

Gas prices in the US have plummeted as new extraction techniques have swamped the market with natural gas and refining margins in Organisation for Economic Co-operation and Development countries have long been in decline.

The writedowns are bad news for a company seeking to rebalance its portfolio by shedding its low margin assets.

"This leads us to be concerned about BP's strategic progress," said Peter Hutton, an energy analyst at RBC Capital Markets, who called the results a "significant miss."

"We are making progress against the critical strategic and operational targets we have set ourselves and are confident that this will deliver long-term, sustainable value," Mr Dudley said.

Results were further undermined by a decline in production due to maintenance work that will affect third-quarter production.

Excluding its Russian TNK-BP joint venture, BP pumped an average of 2.275 million bpd, compared with 2.457 million bpd last year. Russian earnings were $700m lower as oil prices fell and export taxes were not adjusted to the drop.

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