LONDON — BP, Europe's second-largest oil company, reported a $1.4 billion loss Tuesday for the three-month period ended June 30. The main reason for the loss was $4.8 billion in write-downs on refineries, shale gas assets in the United States and a long-delayed project in Alaska.
The earnings will do nothing to assuage the concerns of investors, who are already discontented with the performance of the company and its chief executive, Bob Dudley.
"This is a very, very disappointing set of results; they missed across all fronts by a wide margin," said Peter Hutton, an oil analyst at RBC Capital Markets in London.
Stripping out the $4.8 billion in write-downs, BP's results were still 17 percent below the consensus estimates of analysts, Hutton said.
Dudley is caught between pressure from investors who want to see an improvement in the stock price, which is still down about 30 percent from the level at the time of the disastrous Gulf of Mexico oil spill in April 2010, and his own determination to make BP a safer, more reliable and ultimately more profitable company. Unfortunately, such a transformation requires time and weighs on performance in the short term as oil fields are shut down for major repair work.
"Managing competing priorities is always a problem," Hutton said. "If you want to be thorough and make sure everything is right, it is a major, major exercise."
Hutton said that to convince investors he is on the right track, Dudley needs to demonstrate that costly shutdowns in the Gulf of Mexico, where BP has much of its most profitable oil, are nearing an end.
The Gulf of Mexico has been a two-edged sword for BP. The 2010 spill has already cost the company $38 billion in charges, including another $847 million this quarter, and even threatened its existence at one point. But BP has also been the leader in developing deep water oil fields in the Gulf, and these properties produce some of the most profitable oil in the company's portfolio. Production in the Gulf has dropped sharply in the past two years because of the need for repairs and a halt to drilling that is now resuming. Its oil production in the United States was down a huge 25 percent compared with a year earlier to just 350 million barrels per day.
In a telephone call with reporters, Dudley said two major Gulf of Mexico oil fields, Mad Dog and Atlantis, which he said were among "the most profitable fields in the world," had been shut for major repairs. BP has been replacing the subsea infrastructure of Atlantis, which has long been the target of safety critics. BP production in the Gulf of Mexico was down 85,000 barrels per day in the quarter, according to a spokesman, Robert Wine, who said the two fields would be coming back in the second half of this year and that a new field, Galapagos, was ramping up.
While Dudley said the Gulf of Mexico work was nearing an end, repairs will now begin in the North Sea, whose oil is also very lucrative.
"One of the things we are not going to do is drift off the path of focus on safety," he said. "Stepping up the accelerator of performance in place of that is not going to happen."
Dudley is trying to use the Gulf of Mexico disaster as an opportunity to streamline BP into a smaller but more profitable company. He wants to focus on high-risk, high-return exploration and difficult megaprojects like those in deep water. Since the beginning of 2010 BP has sold about $24 billion worth of oil fields and other assets that it deems nonstrategic and plans for the total to reach $38 billion by the end of 2013. It has cut overall production, excluding its TNK-BP Russian affiliate, to about 2.3 million barrels per day from about 3 million barrels per day in 2009.
"It is going to be value over volume," Dudley said.
His most important move in this regard is his plan to sell its stake in TNK-BP, which amounts to 50 percent. BP is negotiating with both its Russian partners and the state oil company Rosneft to dispose of the stake, which analysts think could bring $20 billion to $30 billion.
BP has made good money out of the $8.1 billion Russian investment, agreed to in 2003, but the deal has been tarnished by frequent bouts of infighting between BP and its Russian shareholders. Thane Gustafson, a Russia oil specialist at IHS CERA, said there was always a strategic conflict between BP and its Russian partners, who are led by Mikhail Fridman.
BP, he said, "was always looking for a long-term strategic partner to go offshore," while the partners "wanted to go outside" Russia.
Last year, the partners used a legal veto to break up a BP deal to invest in a joint venture with Rosneft to explore and develop what could be hugely productive Arctic blocks off Russia. Exxon Mobil wound up replacing BP in the deal.
BP's share in TNK-BP accounts for about 30 percent of the British company's oil production, but the markets and the company have come to see the Russian affiliate as a dead end. The partners block BP from other Russian investments, and BP receives little benefit in its own stock price, analysts say.
Dudley acknowledged that no matter what he does, investors will be nervous until they see a resolution of the Russian situation and more clarity on how much BP will need to pay the U.S. government and other entities for the 2010 spill. The court case that is to decide on those liabilities has been postponed until 2013, but Dudley said BP was amenable to a fair and reasonable settlement.
Like many companies, BP attributed the weak earnings to the impact of lower oil and gas prices. The shale gas boom, which has helped sharply lower natural gas prices in North America, is affecting BP and other companies, including Shell, Europe's largest oil company. Dudley said the Russian tax system, which lags prices by a month, took about $700 million off profits. He pointed out that the prices of both oil and U.S. natural gas rose in July.