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BP Profit Falls as Costs of Gulf of Mexico Spill Outweigh Higher Oil Prices

April 28, 2011 by Leave a Comment

But there are signs that the high prices have started to hurt demand in the United States and other developed countries, which could start pushing prices down again. Lower prices could make the rest of 2011 more difficult for BP and other big oil companies.

BP’s rivals, including Royal Dutch Shell and Exxon Mobil, are still expected to report strong results when they release their first-quarter performances on Thursday.

But some analysts said oil prices could drop about $20 a barrel in the near term, raising questions about whether such companies could keep up the stellar profit growth of last year.

“Concern about supply might fade, and there is a possibility that the world economy will slow,” said Julian Jessop, chief international economist at Capital Economics in London.

But “the future is still bright for oil companies,” he added. “Oil prices will fall back but remain historically high.”

An improving world economy returned oil prices to higher levels in 2010 after a sharp drop in 2009. Exxon Mobil, the largest American oil company, reported a 53 percent increase in profit for the fourth quarter of last year. Chevron earnings in that period rose 72 percent, and ConocoPhillips reported a 46 percent rise.

On Wednesday, BP was the first of the largest publicly traded oil companies to report first-quarter earnings.

For BP, a higher oil price was offset by asset sales to pay for the repercussions from the Gulf of Mexico oil spill. Earnings were $5.48 billion in the first three months of this year, down from $5.6 billion in the period a year earlier.

The company has sold more than $24 billion of assets to raise money to cover the oil spill costs. Production fell as a result. Including lost production from the Gulf accident, production fell 11 percent in the first quarter from a year earlier.

BP set aside an additional $384 million for the oil spill in the first quarter, bringing the total to $41 billion.

BP’s shares have fallen 23 percent in the last 12 months, while those of its largest competitors have risen at least 18 percent.

To win back investors, the company focused on exploration and signed cooperation agreements in India and Russia. But its Russian deal with the government-owned Rosneft was held up this year because of a legal challenge from its Russian shareholders. Russia has surpassed Saudi Arabia as the biggest oil producer in the world. New oil from the region could play an important part in ensuring sufficient supplies and the future level of oil prices.

Those analysts who predicted a decline in the price of oil said concerns about political tensions in North Africa and the Middle East had increased prices but were likely to fade. At the same time, there are signs that high oil prices discourage consumers from filling their tanks just as the summer vacation season starts in the northern hemisphere.

“The oil price is, to an extent, too high at the moment,” said Christopher Wheaton, a director at the asset management firm RCM in London. “We are at the point at which we get demand destruction.”

Still, oil prices are expected to remain high enough for companies to increase investments in drilling aimed at raising production in the longer term. Exxon Mobil said last month that it planned to spend about $100 million a day for the next six years on new oil and gas projects.

The drilling for reserves in more remote and harder-to-reach areas has increased costs for oil companies as they compete for talent and technology. The Gulf of Mexico oil spill also led regulators to tighten safety rules and delay decisions on exploration permits, often further increasing costs for oil companies.

One year after the rig explosion that led to the spill in the Gulf of Mexico, BP is still seeking to resume drilling in the region’s waters, and investors continue to wait for BP to give a total figure for the costs of the spill.

Article source: http://feeds.nytimes.com/click.phdo?i=f485bfb51b24d420c4353342ae63a3d9

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DealBook: BP-Rosneft Deal Faces Another Setback

April 8, 2011 by Leave a Comment

LONDON – An injunction prohibiting BP’s share-swap agreement with Rosneft was extended indefinitely on Friday, adding pressure on the British energy giant to salvage the deal by bowing to demands from its current partners in Russia.

BP is allowed to negotiate an extension of its agreement with Rosneft, which expires April 14. But a tribunal ruled an injunction blocking the $7.8 billion deal would stay in place “until further notice,” BP said in a statement. A group of Russian billionaires, who are BP’s partners in its current Russian joint venture TNK-BP, had asked the tribunal to block the deal with Rosneft, arguing it breaches their shareholder agreement.

A spokesman for BP said the company was “considering its options.” Some analysts said the possibilities for BP range from a settlement with TNK-BP’s shareholders to abandoning the deal with Rosneft. A TNK-BP board meeting is scheduled for early next week.

The Russian partners said Friday they “welcome the decision of the tribunal, which we consider fair, balanced, and thoughtful.”

The tribunal had asked for more evidence from both parties to decide on the share-swap component of the deal, which was announced in January and also includes an arctic exploration agreement. The tribunal plans to hold another round of hearings “at a later date,” the Russian partners said.

Friday’s ruling prolongs an already complex dispute over a deal that was supposed to be the first major effort by Robert Dudley, the BP chief executive, to push the company in a new direction after the oil rig explosion in the Gulf of Mexico last year. The deal with Rosneft would give BP access to a vast unexplored area at a time of heightened competition among oil companies for new reserves.

“They’re still desperately trying to do something and to sweeten the TNK-BP shareholders,” Christine Tiscareno, an analyst at Standard Poor’s in London, said. “The problem is that BP is starting to lose face. These guys are now whipping BP.”

Ms. Tiscareno also said that the setback in Russia could leave BP vulnerable to potential takeover bids from larger rivals. BP’s shares rose 0.7 percent in midafternoon trading Friday in London. They have gained 2.6 percent so far this year but still trade well below their value of before the oil spill in the Gulf of Mexico.

BP’s Russian partners had previously suggested that TNK-BP replace BP in the deal with Rosneft. But BP’s representatives on the TNK-BP board voted against the proposal. Some analysts said any compromise would probably involve some role for TNK-BP in the Rosneft agreement, meaning BP would have to share future profits.

Article source: http://feeds.nytimes.com/click.phdo?i=c716019e73a0bca54f45c1febdb40831

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2 Rig Firm Workers Decline To Appear at Oil Spill Inquiry

April 2, 2011 by Leave a Comment

The inquiry, jointly conducted by the Coast Guard and the Bureau of Ocean Energy Management, Regulation and Enforcement, is holding hearings in New Orleans next week on the failure of the subsea blowout preventer to contain the explosive oil and gas that led to the accident, which killed 11 workers and bled nearly five million barrels of oil into the Gulf of Mexico.

Michael R. Bromwich, the director of the ocean energy bureau, called the refusal of the Transocean employees to appear “unacceptable” and said the company should punish them if they did not testify.

“In my judgment, this is less a legal issue than one of whether Transocean recognizes its moral and corporate responsibility to cooperate with an investigation into the causal factors of the most significant spill in United States history,” Mr. Bromwich said in a letter on Thursday to Steven L. Newman, the chief executive of Transocean.

Mr. Bromwich also said the company’s cooperation could affect its future ability to receive permits to operate offshore.

Transocean, a drilling rig owner and operator, does not receive permits directly but operates as a contractor or a subcontractor to the oil company drilling the well. Transocean was the drilling contractor for BP, which held the permit for the well that catastrophically failed last April 20.

Separately, Transocean disclosed Friday that it had given its top executives, including Mr. Newman, about 45 percent of their targeted performance bonuses for 2010. Several factors, including the accident in the gulf and failure to meet some financial targets, reduced the bonuses.

In a securities filing, Transocean said that despite the gulf tragedy, by its internal statistical measures, “we recorded the best year in safety performance in our company’s history.” Consequently, executives received most of the safety-related portion of their bonuses for the year.

A lawyer for the company said that Transocean had cooperated extensively in the federal investigation and would provide a senior technician to answer questions about the design, maintenance and performance of the blowout preventer. The company said it had no power to force other employees to travel to New Orleans to appear before the body.

Matt Hennessy, the lawyer for James Kent, a Transocean asset manager who has declined to cooperate with the federal investigation, said that the government did not have the authority to compel his client to testify. He also said that the question now before the panel — the maintenance of the oil rig’s blowout preventer — had been rendered irrelevant by a government report issued last month that found that the device functioned as designed but was not strong enough to control the runaway well.

Mr. Hennessy also said that Mr. Bromwich’s suggestion that Transocean punish Mr. Kent or others for not cooperating was “simply outrageous.”

Mike Walsh, a lawyer for the other employee, Jay Odenwald, said that his client lived outside the enforceable range of an administrative subpoena and thus did not have to appear. He said that Mr. Odenwald had been identified as a potential witness last year along with scores of other employees of the companies involved in the well.

“I made the decision that he just wasn’t going to be subject to a spectacle they call a hearing,” Mr. Walsh said.

Neither of the two Transocean employees was aboard the Deepwater Horizon drilling rig at the time it exploded, a company spokesman said.

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