THE Gulf of Mexico oil spill will continue to cast its shadow over BP’s second-quarter results this week, leaving the door open for Shell to win the latest head-to-head tussle between the two rivals.
BP is likely to set aside more cash to help pay for the damage caused in 2010, when an explosion on the Deepwater Horizon drilling rig on the Macondo well killed 11 workers and caused the United States’ worst oil spill.
Last week’s pictures of the fire on Walter Oil & Gas’s Hercules rig in the Gulf of Mexico will have brought back memories of the disaster for Louisiana residents.
BP, led by American-born chief executive Bob Dudley, has already earmarked $8.2 billion (£5.3bn) to pay for damage from the oil slick but warned in its first-quarter results that the figure could be “significantly” too little.
The FTSE 100 firm has complained that it has “been ordered to pay hundreds of millions of dollars – soon likely to be billions – for fictitious and inflated losses” by courts in the US, according to appeal documents.
Peter Hutton, an analyst at RBC Capital Markets, said: “BP is likely to increase its provisions for Macondo due to continued higher payments on business economic losses; these will be stripped out as extraordinary charges in profit and loss but impact cash and, in the first-quarter, increased charges were $500m.”
Charles Stanley analyst Tony Shepard added: “Unfortunately, legal issues continue to overshadow the group.
“The first phase of the Macondo trial has ended but any pronouncement on whether BP was grossly negligent or not is unlikely to be given until at least 2014.
“The second phase of the trial begins in September and will determine the number of barrels of oil that leaked into the Gulf of Mexico.”
Higher levels of maintenance for oil rigs in both the Gulf of Mexico and North Sea are likely to have taken their toll on BP’s figures. The City predicts that second-quarter net income at BP will have dipped to $3.4bn from $3.7bn a year ago when it reports on Tuesday, with Shell’s surplus forecast to rise to $5.9bn from $5.7bn during Thursday’s update.
The UK-Dutch firm’s gas business is expected to have benefited from the cold spring in Europe, with households turning up their heating and driving demand from utility companies for fuel.
RBC’s Hutton said: “On our numbers, Shell’s second-quarter numbers will show it having the best year-on-year growth in our coverage list, with adjusted net income up 11 per cent year-on-year to $6.3bn. Our estimate is 7 per cent above consensus.”
Analysts expect Shell’s chief financial officer Simon Henry to be thrust to the fore during the second-quarter results. They think out-going chief executive Peter Voser will take a back seat but don’t expect his replacement, Ben van Beurden, to step into the limelight until he takes over in March.
Voser’s retirement was announced in May and surprised many in the City. Neil Morton, an Investec Securities analyst, said: “He is only 54 years old and Shell is portraying this is as a lifestyle choice.”