BP has reserved an additional $7.7 billion for expenses in connection with the oil spill in Gulf of Mexico to alleviate delay in the completion of a relief will that permanently sealed to the leak, reported Tuesday.
A sharp fall in profits for BP, a multinational oil giant, was aggravated by the pretax charge following the $32.2 billion budgeted last quarter. The company earned $1.79 billion net profit for the third quarter, a huge drop from last year’s $5.34 billion.
Additional cost was a reminder that the consequences of the spill would still haunt BP for some time, said Richard Hunter, head of British equities at Hargreaves Landsdown Stockbrokers. However, third quarter profits were also a distinct progress and a sign of recovery compared to $17.2 billion loss in the second quarter, said BP’s chief executive, Robert Dudley.
On Tuesday, BP stocks increased 65 cents, or 1.6 percent, to $41.12. Mr. Dudley, a successor or Tony Hayward, is under pressure to advance BP’s finances and to start distributing dividends again to shareholder. According to him, BP’s board would assess whether the company could already afford to pay a dividend after the fourth-quarter figures at the start of next year.
The company stopped paying dividends after the April 20 explosion of the Deepwater Horizon drilling rig spilled millions of barrels of oil into the gulf, in which BP lost billions of dollars in cleanup costs and exposing it to big liabilities for damages caused by the spill.
BP’s rivals Royal Dutch Shell and Exxon Mobil took advantage of BP’s troubles by paying large dividends to attractive investors. Some experts have warned that if BP’s shares keep on lagging compared with competitors, it could be susceptible to take over attempts.
Mr. Dudley stressed that BP’s existing assets are strong and he aimed to use the lessons BP learned from the well explosion to make BP and industry leader at managing risk. He humbly said that the company has a long road to go to win back trust. He confirmed earlier of pledges for the company to meet its liabilities in the United States. Mr. Dudley explained that BP was often asked to share its experiences with others and did not feel blacklisted by the industry because of the gulf disaster.
In dealing with the oil spill, the higher costs were mainly the result of maintaining certain operations longer than expected and the growing administration and legal costs, said Byron Grote, chief financial officer of BP.
BP still anticipated that the $20 billion escrow fund set up to pay claims will also cover legal settlements. But the funds it had set aside to cover the costs of the oil spill assumed that authorities would not charge BP due to grossly negligent in the incident. The presidential commission will announce findings next week.
BP needs to show that it can grow from its smaller capital base. Colin McLean, managing director at SVM Asset Management Edinburgh, said he was not really worried about the additional charge last Tuesday, but his disappointment was due to lack of information about the dividend. With the intention of restoring investor confidence and changing corporate culture that has often given short shrift to safety, Mr. Dudley has begun to shake up BP’s structure by adding a new division to improve and monitor safety. He also linked bonuses to risk management and replace Andy Inglis, the head of exploration and production, who had been in charge of the drilling and capping of the well in the gulf. Mr. Dudley will announce detailed information on BP’s long-term strategy in February.
Meanwhile, BP has continued with its plan of selling $30 billion in assets by the end of 2011 to raise more money related to the oil spill. The company has held about $13 billion in cash at the end of September and announced that the sales program was making good progress and that it had agreements in place for $14 billion assets sales.