Perilous Times
BP oil spill costs to hit $40bn
Company increases estimate from the Deepwater Horizon explosion by
$7.7bn
* Graeme Wearden
*
guardian.co.uk, Tuesday 2 November 2010 08.06 GMT
BP said today it expects the cost of the Deepwater Horizon oil disaster
to be $7.7bn (£4.8bn) bigger than previously thought, pushing the total
bill to nearly $40bn.
The oil giant announced the new charge to cover the cost of the Gulf of
Mexico spill alongside its financial results for the third quarter of
the year. It blamed the delays that dogged its attempts to seal the
leak, along with higher clean-up costs and legal fees.
The new charge knocked BP's pre-tax profits for the third quarter of
2010 down to $1.8bn, compared with $4.98bn a year ago.
In late July BP set aside $32.2bn to cover the cost of the clean-up,
more than the City had expected, a move which pushed the company into a
record loss of $17bn for the second quarter of 2010. At that time,
though, the Macondo well was still leaking oil into the ocean, and was
only finally shut off in mid-September.
Richard Hunter, head of UK equities at Hargreaves Lansdown
Stockbrokers, said the additional $7.7bn provision was "a stark
reminder that the fallout from the spill will follow BP for some
considerable time to come".
The final cost of one of the worst environmental disasters ever could
climb further. BP said that the total charge of $39.9bn was its
"current best estimate of those costs that can be reliably measured at
this time".
So far, BP has actually paid $11.6bn in total costs since the incident,
but still faces on-going clean-up charges, compensation claims, and
probably a multi-billion dollar fine from the US government.
BP owned 65% of the Macondo well with two partners owning the remainder
– Anadarko Petroleum with 25%, and Mitsui & Co with 10%. BP has
billed Anadarko and Mitsui a total of $4.29bn, but admitted that both
companies are "withholding payment in light of the investigations
surrounding the incident".
Separately, Mitsui revealed today it had received a $1.9bn bill from BP
to cover some of the clean-up costs of the spill.
Underlying performance impresses
When the cost of the oil spill were excluded, BP's operating profits
for the quarter were 18% higher than a year ago at $5.5bn. Chief
executive Bob Dudley, in his first results announcement since taking
over from Tony Hayward, said they showed BP was "on track" to recover
from the disaster.
"This strong operating performance shows the determination of everyone
at BP to move the company forward and rebuild confidence after the
terrible events of the past six months," Dudley said.
BP also said that it would reconsider its current dividend freeze in
February 2011.
Richard Griffith, analyst at Evolution Securities, said BP's underlying
performance was better than expected.
Shares in BP rose by 1.5% this morning to 430p, around a third lower
than their value before the Deepwater Horizon rig exploded in April.