By Agency reporter

Wednesday, 3 Nov 2010

LONDON: British Petroleum lifted its estimate of the likely cost of its Gulf of Mexico oil spill to $40bn on Tuesday, denting profits, but its underlying performance beat all expectations on higher refining margins and a lower tax rate.

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.

According to Reuters, the charge, up by $7.7bn, pushed third-quarter replacement cost profit, which strips out unrealized gains or losses related to changes in the value of fuel inventories, down 63 per cent to $1.8bn.

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

Underlying net result was boosted by a drop in BP‘s effective tax rate to 25 per cent from 29 per cent in the same period last year and analyst forecasts of around 30 per cent.

The better-than-expected results, and comments that the oil giant plans to consider reinstating its dividend in 2011, something it had only hinted at previously, lifted BP shares.

These rose 1.9 per cent to 432 pence at 0956 GMT, against a 0.6 per cent rise in the STOXX Europe 600 Oil and Gas index.

”I think with regards to BP, a lot of the uncertainty is out of the way, and it is slowly but surely getting back to business,” senior trader at ETX Capital, Manoj Ladwa, said.

However, some analysts said the result was not a harbinger of better things as the tax rate would likely revert toward normal levels and BP itself said it would be hard to repeat the strong profits from the refining unit.

“The underlying beat is therefore of low quality,” Oswald Clint, oil analyst at Bernstein said in a research note.

Most rivals benefited more from the 12 per cent rise in crude prices in the quarter, compared to a year earlier, the 29 per cent hike in US natural gas prices and the doubling in British gas prices.

Royal Dutch Shell Plc reported an 88 per cent rise in underlying third-quarter net profit and Exxon Mobil, the largest western oil major by market value, reported a 55 per cent rise in net income.

Higher output in the quarter also helped lift BP‘s peers but the London-based oil company said its production fell 4 per cent, compared to July to September 2009, to 3.76 million barrels of oil equivalent per day, due partly to dislocation related to the oil spill.

Analysts had expected BP to register an extra charge related to the oil spill in the third quarter, after delays in capping the well for good, but most had predicted a figure of around $2bn-$3bn.

Source: Punch