| CATEGORY: EXPERT VIEW 1 SECTOR: OIL & GAS PRODUCERS |
Tue 31 Jul 2012
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 | | LONDON (SHARECAST) - Chief Executive Bob Dudley's plaintive cries that changes at BP would 'deliver long-term, sustainable value' fell on deaf ears on Tuesday as investors reacted badly to a big cut in profits.
The stock led the FTSE 100 lower as investors hacked away at the share price, preferring to look at the short-term rather than Dudley's long-term projection.
"The problem is that the company looks not to be suffering from many small cuts but a few large ones, such as the large fall in production or the write-down of US shale gas assets, not forgetting tax complications in Russia," said David White, a trader at spread betting firm SpreadEx.
"For a company already trading at only 5.5 times next year’s earnings, the road looks likely to remain bumpy," he said.
Slump
The company's underlying replacement cost profit for the quarter was $3.7bn, down from $5.7bn for the same period in 2011 and $4.8bn the previous quarter.
This measure excludes any losses or gains from stocks of crude oil and products, and is used to strip out the effect of volatile oil prices.
The company cited weaker oil and gas prices and a cut in output due to an extensive maintenance programme as the chief reason for the poor performance.
BP also reported big charges, which pushed it into the red with a net loss of $1.4bn, compared with a profit of $5.6bn a year earlier.
Production, excluding output from the Russian TNK-BP venture, fell 8% to 2.3m barrels of oil equivalent a day.
The firm went on to say it expected production to fall again in the third quarter.
US assets
It slashed $4.8bn off the value of its US assets as the value of its refineries dropped and its shale gas assets were hit by weak prices.
BP also took a hit of $847m in the second quarter as it increased its provision for various costs and litigation relating the Gulf of Mexico oil spill.
Dudley admitted that there was "significant uncertainty" around how much it would eventually have to set aside to deal with the 2010 oil spill.
Russia frosty
BP's Russian joint venture, TNK-BP, is, as ever, proving a thorn in the company's side.
The firm took a $700m hit from tax lag on Russian production, while on Monday TNK's oligarch owners blocked the payment of dividends from the venture, which is responsible for 29% of BP's oil & gas output.
"Until we are able to resolve one or both of those issues we will continue to have a higher level of uncertainty over the company," Dudley said in a conference call with journalists.
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