BP's oil spill costs grow, keep lid on Q3 profit

BP PLC returned to profit in the third quarter but said it does not plan to rush back into the Gulf of Mexico as it raised the likely cost of the devastating oil spill there by US$7.7 billion to US$40 billion.

The London-based company said Tuesday that increased charge dragged down third quarter net income by more than 60 per cent to US$1.79 billion from a year-earlier profit of US$5.3 billion.

But underlying replacement cost profit — a key industry benchmark —was US$5.5 billion, an 18 per cent increase on the third quarter and above the US$4.6 billion forecast by analysts.

All the other major oil companies, except Chevron, have reported stronger third-quarter profits thanks to higher oil and gas prices.

"What I can report today is that BP is now in recovery mode," Chief Executive Bob Dudley, presiding over his first quarterly results since taking over from Tony Hayward a month ago, told reporters in London.

"Putting aside the incident ... the BP group as a whole delivered a strong business performance throughout the quarter in terms of both financial and safety performance," he said.

Dudley said BP was committed to operating in the Gulf of Mexico following the lifting of a US government moratorium on drilling after the spill, but said the company would "step back" and look at its equipment and rigs in those waters before attempting to jump back in.

Restructure announced

Dudley, who has already announced a restructure of the company's exploration and production unit into three parts and the creation of a new unit to police safety practices, said he would provide more detail on the company's future strategy in February.

The company's exploratory Macondo well in the Gulf blew out on April 20, killing 11 workers and kicking off the worst oil spill in US history. Oil kept gushing until July 15, but it took BP another two months, until September 19, to completely seal the well.

"Broadly, I expect the industry to get back to work sometime in 2011," Dudley said, noting that new regulatory requirements for licences were still under discussion.

Wells in the Gulf can be very profitable, and taxes and royalties in US waters are considered to be much lower than elsewhere in the world.

Drilling projects there typically break even when oil sells for US$50 to US$60 per barrel. It's currently trading near US$82 per barrel.

Chevron and Shell have both submitted requests for projects since President Barack Obama lifted the drilling moratorium on October 12, but new regulations, which include more rig inspections, are expected to make it harder for companies to obtain offshore drilling permits.

"It wouldn't be sensible for us to be the first one to raise our hand and rush in with a permit," Dudley said. "We are still embedding the lessons from this incident ... we are going to take our time and be absolutely thorough and rigorous about this."

He declined to comment on the status of the deep-water rigs it has on lease in the Gulf, or its production forecast from the region, which accounts for around 10 per cent of BP production.

The company last month sold its stake in four mature oil and gas fields in the Gulf to Marubeni Oil and Gas for US$650 million.

- AP