LONDON – BP PLC on Tuesday reported modest profit for this year's second quarter, as its performance continued to be held back by the 2010 Gulf of Mexico oil spill that has cost it more than $60 billion.
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The British oil giant is the last of the world's biggest Western oil companies to report its quarterly earnings. Like its peers Exxon Mobil Corp. and Royal Dutch Shell PLC, BP returned to profit, saying its equivalent of U.S. net earnings was $553 million, compared with a loss of $2.2 billion during the second quarter of 2016.
The company increased its oil-and-gas production by almost 10% compared with a year earlier and has begun feeling the full effects of $7 billion in cost cuts enacted last year, said Chief Financial Officer Brian Gilvary in an interview. The result is that the company now needs a break-even oil price of $47 a barrel, down from the $60 a barrel it reported last quarter.
"We are just doing a lot of the things we said we would do," Mr. Gilvary said.
BP's share price rose over 2.5% in early London trading, as the company's results beat analyst expectations.
Mr. Gilvary said the only thing holding back BP's profit was more than $4 billion in payments related to the 2010 blowout on the Deepwater Horizon oil rig in the Gulf of Mexico. The explosion killed 11 workers, spilled millions of barrels of oil into the ocean and forced BP into a long period of retrenchment.
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Mr. Gilvary said the payments had a reached a "high point for the year" and "will taper down from here" to about $1 billion a year. The company reached a $20 billion settlement in 2015 with federal and state authorities that must be paid out over almost two decades.
The Deepwater Horizon incident has been a drag on BP at the worst time, weighing on the company during a historic downturn in oil prices. BP's profits and cash flow have consistently lagged behind its peers. Its net debt deepened to more than $39 billion in the second quarter, compared with about $30 billion in the same period last year, because of such payments, BP said.
Mr. Gilvary said BP was girding for oil prices in the range of $45 a barrel to $55 a barrel this year and next year, a recovery from last year's low of $27 a barrel but well below the consistently high levels of $100 a barrel seen from 2011 to 2014 before prices crashed.
BP is targeting a break-even oil price of $35 a barrel to $40 a barrel, a sign of how pessimistic big oil companies have become about the oil market's future.
Mr. Gilvary highlighted the company's improved cash flow, saying BP was covering its expenses with cash generated from operations rather than debt. The company said it generated $4.9 billion in operating cash flow in the second quarter, excluding Deepwater Horizon, compared with $3.9 billion the year before.
"BP has underperformed its peers recently and we would expect some of that underperformance to reverse in the near term," wrote Biraj Borkhataria, an oil-company analyst for RBC Capital Markets, in a note Tuesday.
Overall, BP's exploration-and-production unit was buoyed by a raft of discoveries and new projects in Senegal, Egypt, the U.K. North Sea, Trinidad and Tobago, and India. The company is turning to new projects and acquisitions to try to generate growth again, hoping to boost production by a third in the next three years.
"You're starting to see the benefits," Mr. Gilvary said.
Write to Michael Amon at email@example.com
(END) Dow Jones Newswires
August 01, 2017 04:56 ET (08:56 GMT)