Paula Dittrick
OGJ Senior Staff Writer
HOUSTON, July 27 -- BP PLC announced a pretax charge of $32.2 billion for the Gulf of Mexico oil spill, including a previously announced $20 billion escrow compensation fund. In second-quarter results, BP reported $2.9 billion of spill costs so far and estimated $29.3 billion in future costs.
BP also plans to sell assets, primarily upstream properties, for which it expects to receive as much as $30 billion during the next 18 months in a strategic move toward a smaller exploration and production business.
The company plans to reduce its net debt level down to $10-15 billion within 18 months compared with $23 billion net debt on June 30. BP expects group capital spending for 2010 and 2011 of $18 billion/year.
"With the leak now capped we have reached a significant milestone," said Tony Hayward, group chief executive. "This provides a firm basis for moving forward to reshape the company. By disposing of assets worth more to others than to BP we can better align our strategic footprint with our global strengths."
Hayward said BP expects to pay most spill costs by yearend 2010. Other costs are likely to be spread over numerous years, including any fines and penalties, longer-term remediation, compensation, and litigation costs.
BP’s quarterly loss
Executives emphasized BP's strong financial position despite a $17 billion net loss for the second quarter compared with a $4.39 billion profit for the same time last year. Revenue for the latest quarter was up 34% to $75.8 billion.
After adjusting for nonoperating items and accounting effects, the second-quarter underlying replacement cost profit was $5 billion compared with $2.9 billion for the 2009 second quarter. The underlying replacement cost profit is a performance indicator closely followed by analysts.
“Outside the gulf, it is very encouraging that BP's global business has delivered another strong underlying performance, which means that the company is in robust shape to meet its responsibilities in dealing with the human tragedy and oil spill in the Gulf of Mexico," Hayward said.
BP said higher oil and gas prices made up for a loss in gas marketing and trading. In refining and marketing, BP continues to expect an annualized pretax performance improvement of over $2 billion during the next 2-3 years.
Second-quarter operating cash flow, excluding oil spill costs, was $8.9 billion, up 31% compared with the same quarter last year. The higher cash flow enabled the group to reduce its net debt by $2.9 billion in the first half, despite spill cost payments.
BP Chairman Carl-Henric Svanberg said shareholders have not received any dividends since the spill occurred. He said the board will consider its position on future dividend payments early next year.
Contact Paula Dittrick at [email protected].