BP loses $17 billion, but is worst over as Robert Dudley takes reins?
BP earmarked $32.2 billion last quarter for current and future Gulf oil spill costs – leading to $17 billion in losses. Yet BP is cautiously optimistic with Robert Dudley set to take over in October.
BP Managing Director Bob Dudley stands outside BP's headquarters in London Tuesday. On Tuesday, BP confirmed that chief executive Tony Hayward will quit and announced that it lost more than $17 billion in the second quarter because of Gulf oil spill relief efforts.
Toby Melville/Reuters
The oil giant BP reported a $17 billion loss for the year's second quarter – a gargantuan hit to the firm that reflects key costs of the Gulf oil spill.
But the loss comes at a moment when BP is poised to put some of the biggest challenges of the Gulf oil spill crisis behind it.
IN PICTURES: Destructive Oil Spills
Among the changes of recent weeks:
• Along with the quarterly results, BP announced a change in top leadership. Tony Hayward, who enraged many Americans with a demeanor that appeared insensitive to the distress of Gulf residents, will be replaced by BP Managing Director Robert Dudley. Mr. Dudley will become the London-based corporation's first American chief executive.
• Progress has been made on stopping the flow of oil. A cap has prevented any more oil from spewing into the Gulf of Mexico, and BP could stop the well permanently within weeks.
• The company has set aside $20 billion to pay economic damages to Gulf-area communities and businesses, and a new independent administrator, Kenneth Feinberg, is working to get the money moving faster to spill victims.
The $20 billion fund, plus other spill-related costs, was the reason why the second-quarter loss looks so bad. BP says it took a $32.2 billion charge in the quarter "to reflect the impact of the Gulf of Mexico oil spill, including costs to date of $2.9 billion for the response and a charge of $29.3 billion for future costs, including the funding of the $20 billion escrow fund."
The move, coupled with the leadership change and the wellhead cap, raises hopes that the worst of this corporate crisis may now be behind the firm.
Stock analysts, however, are reluctant to jump quickly to that conclusion. Many potential liabilities remain unsettled.
One is whether BP will be found to have exhibited "gross negligence" in operating the Deepwater Horizon rig before its April explosion. That would push up the federal fines per barrel spilled. Similarly, legal liabilities in class-action lawsuits are uncertain. It's also unclear whether firms that were BP partners on the rig will have to pay a share of ultimate tab for the spill.
In TV interviews Tuesday, BP Chairman Carl-Henric Svanberg acknowledged these uncertainties. The company said in its news release that legal costs will be spread out over years. And it's too soon to say that the environmental damage from the spill has been contained. That will be an ongoing effort that could cost billions of dollars in coming months.
Still, for the finances of BP, it's possible that the second quarter will represent a turning point. But only time will tell whether that's the case.
"With the leak now capped we have reached a significant milestone,” Mr. Hawyard said in the earnings news release. “This provides a firm basis for moving forward to reshape the company."
BP's share price has climbed since late June, when it reached a post-spill low point. The stock now trades about 35 percent lower than it did just before the rig disaster, whereas in June the share price had plunged by more than 50 percent. A weak economy has pushed oil stocks in general down about 10 percent in that same time frame.
The spill has forced BP to make some drastic changes. It plans to sell up to $30 billion of its global assets (about 10 percent of its business holdings) to help pay the costs. And it has suspended its shareholder dividends, a move the company hopes to reinstate.
The company "remains strongly committed to the payment of future dividends," Mr. Svanberg said. "The Board will consider its position on future dividend payments ... in February 2011.”
IN PICTURES: Destructive Oil Spills
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