BP profits lower than anticipated

BP posted lower than expected profits today in a further sign of the pressure on the firm as it looks to reverse its fortunes in the wake of the Gulf of Mexico disaster.

The British supermajor reported profits in the three months to June of 5.3 billion US dollars (£3.2 billion), compared to a loss of 16.9 billion US dollars (£10.3 billion) in the same period a year ago.

The results are likely to enrage cash-strapped motorists who are facing soaring prices at the petrol pumps while BP generates an albeit lower-than-expected profit.

The firm has benefited from higher oil prices, driven up in the period by political unrest in the Middle East and North Africa, as well as higher refining margins - the difference between the value of crude oil and the products for which it is used.

But gains were offset by an 11% drop in production in the three months as a result of the suspension of drilling in the Gulf of Mexico and 25 billion US dollars (£15.3 billion) of asset sales.

BP's shares fell 2% today after the results came in below City expectations for replacement cost profits of 6 billion US dollars (£3.7 billion), compared with the reported figure of 5.3 billion US dollars.

Oil prices began to climb early this year as political turmoil spread from Tunisia through Egypt and on to Libya. Supplies were constricted by civil war in Libya, which pushed prices even higher.

BP said the average cost of Brent crude in the period was 117.04 US dollars a barrel - a 50% increase compared with 78.24 US dollars in the same period last year.

The company also said it was benefiting from improved refining margins - up to 13% from 11%.

The improvement came as the cost of petrol at the pumps hit 135.6 pence per litre in June, according to the Office for National Statistics.

The Gulf of Mexico clean-up continued in the quarter - with 6.8 billion US dollars (£4.1 billion) now paid out in claims and in government payments to fund economic and environmental restoration.

BP said the total charge for the Deepwater Horizon incident, which killed 11 men in April last year, reduced by 600 million US dollars (£366.8 million) in the quarter as it received settlement payouts from partners in the Macondo well.

The charge was 40.9 billion US dollars at the end of 2010, which includes the 20 billion US dollar fund set up to deal with claims arising from the spill.

The company warned that production in the third quarter - July to September - would continue to reflect its 30 billion US dollars divestment programme. BP has sold assets in the US, Argentina, Egypt, Venezuela, Vietnam and Colombia to meet its Gulf of Mexico bill.

But the company said it is making strategic progress, purchasing exploration blocks in Brazil, securing operations in Azerbaijan and signing an alliance deal with India's Reliance Industries.

However, BP was dealt a major blow in May when it failed to secure a share swap and Arctic exploration deal with Russian oil group Rosneft.

The failure piled further pressure on chief executive Bob Dudley, who is trying to turn around the group following last year's fatal Deepwater Horizon explosion.

But Mr Dudley remained positive and said: "BP is a company that is changing rapidly. Having stabilised the company while living up to our commitments in the US, we will now increase our focus on performance and long-term value creation.

"We are committed to seeing the true value of the business more strongly reflected in our share price."

The company is paying a dividend of seven cents a share for the quarter, equal to the pay-out for the first quarter, its first dividend payment after suspending pay-outs in the wake of the spill.

Richard Hunter, head of UK equities at Hargreaves Lansdown Stockbrokers, said: "Shadows from the Gulf spill may have lightened, but the forced disposal programme has had an inevitable effect on output."