BP reported a 2 per cent drop in first-quarter profit, falling short of analysts' forecasts as the lingering effects of the oil spill frustrated chief executive Bob Dudley's attempts to turn around the oil major.
Lower production and higher charges due to the oil spill outweighed the benefits of a 38 per cent jump in the price of oil and a tripling of refining margins - factors expected to generate bumper earnings across the oil sector.
BP said its replacement cost net profit was $5.5 billion in the quarter, down 2 per cent on the same period last year and compared with predicted rises of 22 per cent at Royal Dutch Shell Plc and 59 percent at Exxon Mobil.
The London-based company was forced to sell oil fields to pay for the spill and this contributed to an 11 per cent drop in production compared with the first three months of 2010.
"We continue to see a challenged outlook for the company absent of volume growth," said Oswald Clint, oil analyst at Bernstein.
BP took an additional $400 million charge for costs related to the United States' worst-ever oil spill, bringing the total predicted bill to $41.3 billion, although fines and punitive damages related to gross negligence - which BP denies - could lead to a much higher figure.
News emerged yesterday that cruise operator Carnival had filed a lawsuit seeking compensation for lost bookings and punitive damages.
However, the rise in the oil spill charge was the smallest BP announced since the leak was halted, and Jason Kenney, oil analyst at ING, said the stabilising of BP's provisioning was a reassuring sign.
Fears about the potential costs mean BP trades at a significant discount to the combined value of its assets, and many analysts have pointed to this as an opportunity.
"Admittedly an investment in BP requires a risk appetite given the many moving themes for the group and the potentially material changes these may imply. However, we continue to see significant risk to the upside and believe the rebound story remains intact," Mr Kenney said.
However, few market players are predicting an early recovery in BP shares to pre-spill levels.
"The ongoing obligations due to the Macondo incident will hamper the near-term growth of the business and prevent dividend growth until the gross misconduct liability is resolved in 2012," Richard Rose at Oriel Securities said.
Excluding one-offs such as asset sales and the costs of the spill, BP's underlying results were $5.37 billion, short of an average forecast of $5.70 billion from a poll of nine banks and brokerages.
BP, Europe's third-largest oil company by market value, said it was pursuing a range of options to try and solve its dispute with its Russian partners in TNK-BP over a planned tie-up with Rosneft.
Last week, BP and the contractors it hired to help drill the doomed Macondo well, Halliburton and Transocean, and equipment maker Cameron, filed lawsuits worth over $120 billion against each other.
BP has alleged fraud and misconduct and asked the courts to force the contractors to pay for the spill. Lawyers expect years of legal wrangling, followed by a settlement, rather than a day in court which would prove embarrassing to all involved.
Reuters
