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(NYT) Series of Write-Downs Leads to a Loss at BP

Series of Write-Downs Leads to a Loss at BP
By STANLEY REED
Published: July 31, 2012

LONDON — BP, the British oil company, on Tuesday reported a $1.4 billion loss for the second quarter, its operating profits wiped out by $4.8 billion in write-downs on refineries, shale gas assets in the United States and a long-delayed project in Alaska.

The earnings did nothing to assuage the concerns of investors, who were already discontented with the performance of the century-old company and its first American chief executive, Robert W. Dudley. BP’s shares fell nearly 5 percent in New York trading on Tuesday.

“This is a very, very disappointing set of results,” said Peter Hutton, an oil analyst at RBC Capital Markets in London. “They missed across all fronts by a wide margin.” Stripping out the $4.8 billion in write-downs, BP’s results were still 17 percent below the consensus estimates of analysts, Mr. Hutton said.

According to Mr. Dudley, BP is writing off a combined $2.1 billion on shale gas acreage because of lower natural gas prices, as well as a project called Liberty on the North Slope in Alaska that BP recently halted because of environmental and other concerns.

The remaining $2.7 billion write-down was for the value of BP’s American refinery system. The company is trying to sell two of its United States refineries, including a giant one in Texas City, Tex., and has come to realize from other sales that they are not worth the value they had on the company’s books.

Mr. Dudley is caught between pressure from investors who want to see an improvement in the stock price, which is down about 30 percent from its level at the time of the disastrous Gulf of Mexico oil spill in April 2010, and his own determination to make BP a safer, more reliable and ultimately more profitable company.

“Managing competing priorities is always a problem,” Mr. Hutton said. “If you want to be thorough and make sure everything is right, it is a major, major exercise.”

Mr. Hutton said that to convince investors he was on the right track, Mr. Dudley needed to demonstrate that costly shutdowns in the Gulf of Mexico were nearing an end.

The gulf has been a two-edged sword for BP. The 2010 spill has already cost the company $38 billion in charges, including an additional $847 million this quarter. But BP has also been the leader in developing deepwater oil fields in the gulf, and these properties produce some of the most profitable oil in the company’s portfolio.

BP’s production in the gulf has dropped sharply in the past two years because of repairs as well as a temporary halt on drilling after the 2010 accident.

BP’s oil production in the United States was down 25 percent compared with a year earlier, to just 350,000 barrels a day.

During a telephone call with reporters on Tuesday, Mr. Dudley said that two major gulf oil fields, Mad Dog and Atlantis, had been shut for repairs. BP has been replacing the subsea infrastructure of Atlantis, which has long been the target of safety critics.

According to a spokesman, Robert Wine, 85,000 barrels a day of BP production in the gulf was offline in the quarter. Mr. Wine said that the two closed fields would be coming back in the second half of this year and that a new field, Galápagos, was ramping up.

While the gulf will soon be back to full production, repairs were to begin in the North Sea, where drilling is also lucrative.

“One of the things we are not going to do is drift off the path of focus on safety,” Mr. Dudley said. “Stepping up the accelerator of performance in place of that is not going to happen.”

Mr. Dudley is trying to use the 2010 spill as an opportunity to streamline BP into a smaller but more profitable company. He wants to focus on high-risk, high-return exploration and difficult megaprojects like those in deep water.

Since the beginning of 2010, BP has sold about $24 billion of oil fields and other assets that it deemed nonstrategic, and it planned to bring that to $38 billion by the end of 2013.

The company has cut overall production, excluding its TNK-BP Russian affiliate, to about 2.3 million barrels a day from about three million barrels a day in 2009.

“It is going to be value over volume,” Mr. Dudley said.

His most important move in this regard is his plan to sell the company’s 50 percent stake in TNK-BP, a joint venture in Russia. BP is in talks with its Russian partners and the state oil company Rosneft to sell the stake, which analysts think could bring $20 billion to $30 billion.

BP has made good money from the $8.1 billion Russian investment, agreed to in 2003, but the deal has been tarnished by frequent bouts of infighting between BP and its Russian shareholders.

Last year, the partners used a legal veto to break up a BP deal to invest in a joint venture with Rosneft to explore and develop what could be hugely productive Arctic blocks off Russia. Exxon Mobil wound up replacing BP in the deal.

BP’s share in TNK-BP accounts for about 30 percent of the British company’s oil production, but the markets and the company have come to see the Russian affiliate as a dead end. The partners block BP from other Russian investments, and BP receives little benefit in its own stock price, analysts said.

Mr. Dudley acknowledged that no matter what he did, investors would be nervous until they saw a resolution of the Russian situation and more clarity on how much BP would need to pay the United States government and other entities for the 2010 spill. A court case on those liabilities has been postponed until 2013, but Mr. Dudley said BP was amenable to a fair and reasonable settlement.

BP’s disappointing results were far from unique in the industry. The two biggest oil companies, Exxon Mobil and Royal Dutch Shell, also recently reported lower earnings compared to a year earlier.

All three companies were hit by oil prices that were down 7 percent from a year earlier and by sharply lower natural gas prices in the United States.

This article has been revised to reflect the following correction:

Correction: July 31, 2012

An earlier version of this article misstated BP’s oil production in the United States as 350 million barrels a day, rather than 350,000 barrels a day.

Labels: BP, OIL

posted by MrK @ 2:54 AM