Lower oil prices and squeezed refining margins hit BP in its second trading quarter as profits slumped 44 per cent and the oil major took another financial hit from the Gulf of Mexico environmental disaster.
The performance prompted another cut to BP’s 2016 capital investment budget to below the $17 billion (£13bn) target it had previously given.
Underlying replacement cost profit, which excludes gains and losses due to changes in the value of oil stocks held by companies, fell to $720 million (£549m) from $1.3bn in the same period of 2015.
The industry benchmark profit was $120m below an analyst consensus provided by BP, and the shares dipped 5.75p to close at 434.6p.
Oil prices fell to a three-month low yesterday amid concerns of a global oversupply of crude and natural gas, with Brent crude down 2.1 per cent at $44.75 a barrel.
Oil, which was riding high at $115 in the summer of 2014, touched a low of $27 last January. The company also booked a further $5.2bn charge linked to costs associated with the Deepwater Horizon oil spill in the Gulf of Mexico in 2010. The bill for that disaster, which killed 11 oil workers and tipped millions of barrels of crude into the Gulf, is now $61.6bn, with BP saying yesterday that it has now drawn a line under the payouts.
BP said “downstream” margins – mainly refining – also hit a six-year low in the three months to June. Bob Dudley, group chief executive, said he expected the industry backdrop to remain “challenging”.
However, his overall mood was bullish, saying: “We are delivering significant improvements to the business that will stick at any oil price.
“We are now well down the path of transforming our business to compete, whatever the future holds. We now see a much stronger outlook for BP and are focused on growth, both for this decade and beyond.”
That was greeted with some scepticism among BP-followers in the City. Nicholas Hyett, equity analyst at Hargreaves Lansdown, said: “It looks like BP is betting on a speedy return to higher oil prices.
“If that appears, then BP will have protected its shareholders through the tough times. But if oil does not rebound, then BP will become progressively weaker in an environment where strength matters.
“If prices do recover, BP’s lower cost base will serve it very well, and profits ought to recover rapidly, but for now, cost cutting is simply serving to limit the damage.”