BP reports record loss of $17.1 billion
As it posted a record $17.1-billion loss stemming from the Gulf of Mexico oil spill, British giant BP moved quickly to change management, propose the sale of up to $30 billion in assets and refocus the company on its core businesses.
Robert W. Dudley, formally named Tuesday as chief executive to succeed the gaffe-prone Tony Hayward, said he does “not underestimate the nature and the complexity of the work ahead” in restoring the company’s finances and reputation, particularly in the United States. The U.S. accounted for 40% of BP’s sales last year.
Dudley, who last month had replaced Hayward in supervising the gulf cleanup, also sought to reassure the region’s residents that his promotion to BP’s top executive post did not mean that he was leaving them or their problems behind.
“Taking up this role over the coming months will not reduce my commitment to the region,” said Dudley, who was born in New York City and raised in Mississippi.
The spill could cost BP as much as $60 billion in cleanup costs and financial penalties, said Fadel Gheit, an analyst at Oppenheimer & Co.
“The oil spill, which is one of the worst in history, is likely to result in record financial liabilities. It is by far the biggest challenge BP, or probably any company, has ever faced, and BP’s survival could depend on its outcome,” Gheit said.
BP’s huge second-quarter loss, amounting to $5.42 a share, stood in sharp contrast to much of the rest of the oil industry, which has enjoyed big profits from significantly higher crude and natural gas prices and stronger profits in refining.
On Tuesday, Occidental Petroleum Corp. in Los Angeles turned in quarterly results — including a 61% increase in earnings — that were more in line with what analysts were expecting from most of the oil industry.
BP was heading for stellar results, too, until the April 20 explosion of the drilling rig Deepwater Horizon killed 11 workers and ruptured the pipeline, allowing oil to spew from the ocean floor for more than three months.
Its subsequent losses contrast with the company’s earnings of $3.1 billion, or $1.01 a share, for last year’s second quarter. Revenue rose $73.7 billion from $54.8 billion in the year-earlier quarter.
Had it not been for the spill, BP was poised to report a net income of $5.6 billion, or $1.79 a share — more than 80% higher than the year-earlier quarterly profit.
Occidental reported net profit of $1.1 billion, or $1.31 a share, in the second quarter, compared with earnings of $682 million, or 84 cents, in the same period a year ago. Its biggest problem going forward may be the high expectations it has created among Wall Street analysts, who had anticipated a profit of about $1.35 a share.
Occidental sales climbed nearly 30% to $4.8 billion from $3.7 billion.
The company’s oil production rose 3.5%. Growth in producing wells is considered a strong indicator of industry health in an era in which oil around the world is found in places where it is more difficult to reach.
“Occidental is a company with a good reputation. They are one of the premier energy companies in the world,” said Brian Youngberg of Edward Jones & Co. “They have a very strong track record both operationally and for investors. They pay great dividends, and the stock is cheap.”
That’s the kind of reputation that will be very difficult to equal for a company like BP, which has had several accidents and mishaps in recent years.
In 2005, its Texas City, Texas, refinery blew up and killed 15 workers. The company pleaded guilty to a felony Clean Air Act violation two years later and paid a $50-million fine.
In 2006, BP shut down its Alaska oil fields because of severe corrosion of its pipelines. It agreed a year later to pay $20 million in criminal fines and restitution to the state and to the National Fish and Wildlife Foundation for pipeline leaks and spills at Prudhoe Bay, the nation’s largest oil field.
Without citing those earlier problems, BP officials tried to make a point that the company simply cannot afford more of the same. The first step in that direction, Dudley said, was making good on its promises to clean up the gulf spill and help its victims.
“I believe strongly that meeting our commitments in the gulf is critical to BP’s long-term success,” said Dudley, the first American to head the British company.
In a conference call with analysts, he said the forthcoming asset sales would ensure that the company had the funds to cover spill costs and would help establish a leaner and more agile company. It also would provide BP with “a chance and a time to reset our portfolio,” he said.
Dudley said BP and the rest of the oil industry would be changed forever by the gulf disaster.
After the announcements, BP shares closed at $38, down 65 cents. Occidental shares fell $2.98 to $79.94.