BP ups spill cost estimate by $8 bln, profits dive

BP ups spill cost estimate by $8 bln, profits dive

London: BP lifted its estimate of the likely cost of its Gulf of Mexico oil spill by $7.7 billion to $39.9 billion on Tuesday, pushing its profits down sharply in spite of higher oil and gas prices.

BP, the world’s biggest non-government controlled oil company by production last year, said delays in capping its blown out well prompted the increased charge for ending the leak, cleaning up the damage and compensating those affected.

BP said third-quarter replacement cost profit, which strips out unrealised gains or losses related to changes in the value of fuel inventories, fell 63% to $1.8 billion.

Stripping out one-offs, including the oil spill costs, the underlying results rose 18%, compared to the same period in 2009, to $5.53 billion, well ahead of an average forecast $4.60 billion from a Reuters poll of seven analysts.

BP’s result compares with an 88% rise in underlying net profit at rival Royal Dutch Shell Plc, and a 55% rise in net income at the largest western oil major by market value Exxon Mobil.

The final cost of the oil spill could be far larger, or smaller, than the $40 billion charge BP has taken.

Anadarko Petroleum and Japan’s Mitsui own 35% of the blown out well and they are contractually obliged to share the costs. However, they are claiming that this obligation is void because BP was grossly negligent.

Accounting rules require BP to ignore any recoverable payments that are not certain so it is possible that the partners do, in the end, pay up to 35% of the total cost.

However, if gross negligence is proven, then BP will face the entire $40 billion bill alone, and will face additional federal fines of around $17 billion.