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Abu Dhabi, UAEWednesday 20 June 2018

BP back in black with Mexico spill costs slashed

But earnings were capped by larger tax payments this time around

A BP petrol station in London. BP plans to introduce charging points for electric vehicles across its global network of fuel service stations. Caroline Spiezio / AP
A BP petrol station in London. BP plans to introduce charging points for electric vehicles across its global network of fuel service stations. Caroline Spiezio / AP

BP returned to profit in the second quarter on slashed charges linked to the Gulf of Mexico oil spill disaster and on firmer crude prices, the energy major said on Tuesday.

Net profit stood at US$144 million in the three months to June 30 compared with a loss after tax of $1.4 billion in the second quarter of 2016, the British group said.

It noted however that profits were capped by larger tax payments this time around and an exploration write-off in Angola.

Looking ahead, the chief executive Bob Dudley said BP would continue with a "tight focus on costs, efficiency and discipline in capital spending".

Oil companies are cutting investments and jobs in addition to selling off non-core assets after a tough few years that saw crude prices crash prior to the start of their recovery over the past 12 months.

BP expects global oil prices to hold within a range of $45 to $55 a barrel next year as US shale production grows, the company's chief financial officer said on Tuesday.

After a slow start to the year, global oil demand recovered in the second quarter of 2017 and was expected to grow by 1.4 to 1.5 million barrels per day, Brian Gilvary said.

"Global demand is looking pretty strong, and prices will firm around the levels seen today," he said.

Brent crude oil prices averaged $51.71 a barrel in the first half of 2017 and are currently just below $53 a barrel.

The average price of benchmark North Sea Brent oil rose to $49.64 per barrel in the second quarter from $45.59 per barrel a year earlier, BP said.

In the second quarter, the latest Gulf of Mexico oil spill charge before interest and tax came in at $347m, far lower than the hit of $5.1bn a year earlier.

"While net debt rose primarily due to Gulf of Mexico payments, we expect this will improve over the second half as these payments decline and divestment proceeds come in towards the end of the year," Mr Gilvary added.

The company continues to be hit by costs linked to a deadly explosion on a BP-leased drilling rig in 2010 that unleashed the worst environmental disaster in US history.

The blast killed 11 workers and spilled oil for 87 days until it was plugged. The disaster blackened beaches in five US states and crippled tourism and fishing industries.

BP on Tuesday said the total cost of the disaster to the company to date, including fines and compensation to businesses, stands at more than $63bn.

In morning deals following the earnings update, shares in BP were up a strong 3.3 per cent at 460.35 pence on London's benchmark FTSE 100 index, which climbed 0.7 per cent to 7,426.86 points overall compared with the close on Monday.

Combining the return to profit with "an interim dividend of 10 cents per share and investors have barrelled into the stock", said Spreadex analyst Connor Campbell.

* Agencies