BP Plc posted a 45 percent slump in earnings, pointing to a poor set of results from the industry as oil production barely breaks even and profits from refining dip.
The U.K. company, the first oil major to report second-quarter results, said adjusted profit dropped to $720 million from $1.3 billion a year earlier, missing analyst estimates. Weak refining margins weighed on the downstream result.
BP’s earnings signal trouble for the world’s major energy producers, which relied on refining profits last year to weather the collapse of crude oil. While Chief Executive Officer Bob Dudley continues to rein in spending, he faces a difficult road ahead as debts climb and oil’s rally fades amid slowing demand growth and returning production from Canada to Nigeria. The company’s top global competitors report later this week.
“There will be weakness in the second half of this year because of refineries,” said Ahmed Ben Salem, an analyst at Oddo & Cie in Paris. “Even though the companies have been successful in reducing costs, there are still some big challenges ahead for BP and the other oil majors.”
BP’s shares fell 1.3 percent to 434.60 pence, the lowest this month, in London trading. The stock was the second-biggest loser in the 20-member Stoxx Europe 600 Oil & Gas Index.
While Brent crude is up almost 60 percent from its January low, the industry is still contending with a cocktail of problems. Second-quarter refining margins were the lowest for the period since 2010 and will remain under “significant pressure,” while oil and gas production is barely profitable, BP said in a statement. The company took on an extra $900 million in debt in the period to maintain dividends, and cut spending further.
Downstream earnings fell to $1.51 billion from $1.87 billion. While cheaper crude previously boosted income for BP’s refineries, margins have been contracting. Global refining margins averaged $13.80 a barrel in the quarter through June, and have dropped to $10.70 a barrel this month, according to the company’s website.
BP also gave its final estimate of all costs related to the 2010 oil spill, saying it expected liabilities to total $61.6 billion That allows the company finally to draw a line under the disaster and improve “earnings visibility” for investors, said Alex Brooks, an analyst at Canaccord Genuity Group Inc. in London.
Royal Dutch Shell Plc, Total SA, Exxon Mobil Corp. and Chevron Corp. are expected to publish their results this week.
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