BP bounces back – but can it last?

Oil giant says it has turned the corner after 2010's disastrous Gulf of Mexico spill, yet a multi-billion civil claim could cost it dearly, reports Tom Bawden

BP is giving the distinct impression of a company that believes it has finally turned the corner after the fateful Gulf of Mexico oil spill turned the group upside down back in April 2010.

In a notice ahead of this Thursday's annual shareholders meeting, chairman Carl-Henric Svanberg declared: "2012 was a year of milestones for BP. From addressing uncertainty in the US and Russia to driving forward our strategy and performance, we have made substantial progress."

Chief executive Bob Dudley used very similar language at the company's results presentation in February, despite reporting a 19 per cent slump in profit for 2012. "Moving through 2013 we will deliver further operational milestones," the bullish New Yorker argued.

But has BP really turned a corner since the Deepwater Horizon rig exploded, leading to 11 deaths and gushing an estimated 4.9m barrels of oil into the sea in the following three months?

The FTSE 100 oil company lost more than half of its value in days immediately after the accident, although shares have regained some ground since then. However, at around 450p today they remain well below the 650p they were fetching before the incident and they are lower than they were at the start of 2012 .

The disaster dealt a monumental blow to BP's reputation, not to mention its balance sheet, while then chief executive Tony Hayward became America's public enemy No 1 after making the understandable – but highly tactless and naïve – statement that "I'd like my life back". After that, it was only a matter of time before he resigned, with current chief executive Dudley taking up the reins.

But Dudley arguably made things worse. Determined to make his mark, he hit the ground running, signing an exploration deal with Rosneft to produce oil and gas in the Russian Arctic.

The problem was that the terms of its troublesome TNK-BP joint venture in Russia – with the AAR consortium of oligarchs – obliged BP to give the venture first refusal on any opportunities in the country. This put further strain on BP's already fraught relationship with AAR, which led to court action and the collapse of the deal in May 2011.

The incident hit the new chief executive's reputation making him look callow and complacent for not ensuring AAR's co-operation before the deal was announced – an oversight which seemed all the more surprising given that Dudley was once the head of TNK-BP, until he was forced out of Russia in 2008 citing harassment from the authorities.

But he has bounced back and has recently pulled off what looks to be a significant coup, with a deal that severed BP's ties with TNK-BP and put it back into bed with Rosneft in one fell swoop.

BP and AAR each agreed to sell their half of the joint venture to Rosneft, Russia's state-owned oil giant. The deal – finalised last month –handed BP $12.5bn (£8.3bn) in cash and an 18.75 per cent stake in Rosneft (on top of its existing 1 per cent shareholding) making it the second biggest shareholder in the Russian company, after the Kremlin.

BP's new relationship with Rosneft will see the pair exploring for oil in the potentially lucrative, but still largely unproven, Russian Arctic as well as in other countries that might otherwise be closed to the UK, such as oil-rich Venezuela.

The group's other recent milestone came in November when BP reached a $4.53bn settlement with American authorities over the Gulf of Mexico. This amounted to the biggest criminal penalty in US legal history and saw BP plead guilty to 14 counts of criminal misconduct.

However, it was welcomed by shareholders because it removed a key uncertainty surrounding the legal cost of the spill, resolving all federal criminal charges and claims by the US Securities and Exchange Commission.

Crucially, however, BP was unable to settle with the government on the monster civil case that kicked off in New Orleans, which could drag on for months and whose outcome is far from certain.

"It has turned a corner, yes, and realised how big the maze really is," said Liberum Capital analyst Andrew Whittock. "It's good that BP's done the deal in Russia, but the US court case... who knows? And what happens beyond that? Why should people invest in BP rather than Shell, Exxon and Total? Is it better positioned than them in gas? No. Shale? No. East Africa? No. Australasia? No."

Mr Whittock added that BP does have a "strong position" in the Middle East and decent businesses in the North Sea, Caspian Sea, Trinidad and Angola.

Iain Pyle, an analyst at Sanford Bernstein, added: "BP is certainly in the process of turning the corner, but it's still too early to say that it has. By the end of the year, we should have a clearer idea."

BP has transformed itself since the spill, selling $50bn worth of assets, including its TNK-BP stake and the Texas refinery that suffered a fire and explosion in 2005. It now has just half the number of oil and gas platforms, half its pipelines and two-thirds the number of wells. But it has only lost 9 per cent of production and 10 per cent of reserves in the process – implying substantially higher profit margins in future.

Add to that a dividend up from nothing after the spill to 9 cents a share for the fourth quarter of 2012, and last month's announcement of an $8bn buyback, and investors have some reason for cheer.

But the great unknown of the US civil court case remains. The worst case scenario – a verdict of gross negligence – could see BP's legal bill coming to $50bn more than the $42.2bn it has budgeted for. That would leave BP with a further major corner to turn, before it even finishes turning this one.

News
Kenny Ireland, pictured in 2010.
peopleActor, from House of Cards and Benidorm, was 68
News
A scene from the video shows students mock rioting
newsSchool leaver's pic YouTube video features staging of a playground gun massacre
Travel
travel
Voices
A family sit and enjoy a quiet train journey
voicesForcing us to overhear dull phone conversations is an offensive act, says Simon Kelner
PROMOTED VIDEO
Arts and Entertainment
The cast of The Big Bang Theory in a still from the show
tvBig Bang Theory filming delayed by contract dispute over actors' pay
Sport
England celebrate a wicket for Moeen Ali
sportMoeen Ali stars with five wickets as Cook's men level India series
News
Morrissey pictured in 2013
people
Life and Style
The director of Wall-E Andrew Stanton with Angus MacLane's Lego model
gadgetsDesign made in Pixar animator’s spare time could get retail release
News
peopleGuitarist, who played with Aerosmith, Lou Reed and Alice Cooper among others, was 71
Travel
travel
News
Robyn Lawley
people
News
ebookA unique anthology of reporting and analysis of a crucial period of history
News
people
News
i100  ... he was into holy war way before it was on trend
Arts and Entertainment
High-flyer: Chris Pratt in 'Guardians of the Galaxy'
filmThe film is surprisingly witty, but could do with taking itself more seriously, says Geoffrey Macnab
News
people
Life and Style
food + drinkVegetarians enjoy food as much as anyone else, writes Susan Elkin
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

1st Line Support Technician / Application Support

£20000 - £24000 per annum: Harrington Starr: A leading provider of web based m...

Team Secretary - (Client Development/Sales Team) - Wimbledon

£28000 - £32000 per annum: Ashdown Group: Secretary (Sales Team Support) - Mat...

Accountant / Assistant Management Accountant

Competitive (DOE): Guru Careers: We are looking for an Assistant Management Ac...

Senior Investment Accounting Change Manager

£600 - £700 per day + competitive: Orgtel: Senior Investment Accounting Change...

Day In a Page

Save the tiger: Tiger, tiger burning less brightly as numbers plummet

Tiger, tiger burning less brightly

When William Blake wrote his famous poem there were probably more than 100,000 tigers in the wild. These days they probably number around 3,200
A tale of two presidents: George W Bush downs his paintbrush to pen father’s life story

A tale of two presidents

George W Bush downs his paintbrush to pen father’s life story
Save the tiger: The day America’s love of backyard tigers led to a horrific bloodbath

The day America’s love of backyard tigers led to a horrific bloodbath

With only six per cent of the US population of these amazing big cats held in zoos, the Zanesville incident in 2011 was inevitable
Samuel Beckett's biographer reveals secrets of the writer's time as a French Resistance spy

How Samuel Beckett became a French Resistance spy

As this year's Samuel Beckett festival opens in Enniskillen, James Knowlson, recalls how the Irish writer risked his life for liberty and narrowly escaped capture by the Gestapo
We will remember them: relatives still honour those who fought in the Great War

We will remember them

Relatives still honour those who fought in the Great War
Star Wars Episode VII is being shot on film - and now Kodak is launching a last-ditch bid to keep celluloid alive

Kodak's last-ditch bid to keep celluloid alive

Director J J Abrams and a few digital refuseniks shoot movies on film. Simon Usborne wonders what the fuss is about
Once stilted and melodramatic, Hollywood is giving acting in video games a makeover

Acting in video games gets a makeover

David Crookes meets two of the genre's most popular voices
Could our smartphones soon be diagnosing diseases via Health Kit and Google Fit?

Could smartphones soon be diagnosing diseases?

Health Kit and Google Fit have been described as "the beginning of a health revolution"
Ryanair has turned on the 'charm offensive' but can we learn to love the cut-price carrier again?

Can we learn to love Ryanair again?

Four recent travellers give their verdicts on the carrier's improved customer service
Billionaire founder of Spanx launches range of jeans that offers

Spanx launches range of jeans

The jeans come in two styles, multiple cuts and three washes and will go on sale in the UK in October
10 best over-ear headphones

Aural pleasure: 10 best over-ear headphones

Listen to your favourite tracks with this selection, offering everything from lambskin earmuffs to stainless steel
Commonwealth Games 2014: David Millar ready to serve up gold for his beloved Scotland in the end

Commonwealth Games

David Millar ready to serve up gold for his beloved Scotland in the end
UCI Mountain Bike World Cup 2014: Downhill all the way to the top for the Atherton siblings

UCI Mountain Bike World Cup

Downhill all the way to the top for the Atherton siblings
Save the tiger: The animals bred for bones on China’s tiger farms

The animals bred for bones on China’s tiger farms

The big cats kept in captivity to perform for paying audiences and then, when dead, their bodies used to fortify wine
A former custard factory, a Midlands bog and a Leeds cemetery all included in top 50 hidden spots in the UK

A former custard factory, a Midlands bog and a Leeds cemetery

Introducing the top 50 hidden spots in Britain