BP Plc posted a 45% slump in earnings, pointing to a poor set of results from the industry as oil production barely breaks even and profits from refining sputter.
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, Bloomberg reported.
Weak refining margins weighed on the downstream result.
“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 as much as 3.2% on Tuesday, the biggest intraday decline in a month.
While Brent crude is up almost 60% 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.
___Oil Spill
BP this month 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.
BP says it will be able to balance cash flow with shareholder payouts and capital spending at an oil price of $50 to $55 a barrel next year. Benchmark Brent is currently trading below $45 a barrel in London. That’s down from an average $47.03 in the second quarter and $63.50 a year earlier, but up from $35.21 in the first quarter of this year.