LONDON (AP) -BP PLC returned to profit in the third quarter and stressed its commitment to deepwater drilling in the Gulf of Mexico even as it raised the likely cost of the devastating oil spill in those waters by $7.7 billion.
The London-based company said Tuesday that increased charge dragged down third quarter net income by more than 60 percent to $1.79 billion from a year-earlier profit of $5.3 billion.
But underlying replacement cost profit — a key industry benchmark — was $5.5 billion, an 18 percent increase on the third quarter and above the $4.6 billion forecast by analysts.
All the other major oil companies, except Chevron, have reported stronger third quarter profits thanks to higher oil and gas prices.
“What I can report today is that BP is now in recovery mode,” Chief Executive Bob Dudley, presiding over his first quarterly results since taking over from Tony Hayward a month ago, told reporters in London.
“Putting aside the incident … the BP group as a whole delivered a strong business performance throughout the quarter in terms of both financial and safety performance,” he added.
Dudley said BP was committed to operating in the Gulf of Mexico following the lifting of a U.S. government moratorium on drilling after the spill, but said the company would “step back” and look at its equipment and rigs in those waters before attempting to jump back in.
The company’s exploratory Macondo well in the Gulf blew out on April 20, killing 11 workers and kicking off the worst oil spill in U.S. history. Oil kept gushing until July 15, but it took BP another two months — until Sept. 19 — to completely seal the well.
“Broadly, I expect the industry to get back to work sometime in 2011,” Dudley said, noting that new regulatory requirements for licenses were still under discussion.
Wells in the Gulf can be very profitable and taxes and royalties in U.S. waters are considered to be much lower than elsewhere in the world. Drilling projects there typically break even when oil sells for $50 to $60 per barrel. It’s currently trading near $82 per barrel.
Chevron and Shell have both submitted requests for projects since President Barack Obama lifted the drilling moratorium on Oct. 12, but new regulations, which include more rig inspections, are expected to make it harder for companies to obtain offshore drilling permits.
“It wouldn’t be sensible for us to be the first one to raise our hand and rush in with a permit,” Dudley said. “We are still embedding the lessons from this incident …we are going to take our time and be absolutely thorough and rigorous about this.”
There has been speculation that BP will be particularly targeted in a tougher regime in the Gulf, which accounts for around 10 percent of BP production, but Dudley said he had received no such indications from the U.S. administration.
Dudley has been working to rebuild BP’s shattered reputation, particularly in the United States, and turn around a 35 percent rout in the company’s share price since the Gulf explosion.
The stock was 1.7 percent higher 431 pence ($6.91) in morning trading on the London Stock Exchange.
Evolution Securities analyst Richard Griffith said he was maintaining a “buy” recommendation for the company, with a target price of 510 pence, “as we believe the true liability for the Macondo accident to be nearer $25-30 billion as opposed to the around $60 billion the market is discounting.”
The hike in the pretax charge for the spill, due to a delay in sealing the busted Macondo well, was far above analysts’ expectations of a rise of around $2-3 billion and takes the total charges BP has booked for the spill response and future fines and compensation to $40 billion.
BP faces a fine of up to $1,100 under the Clean Water Act for each barrel of oil spilled and may still be barred from gaining new licenses to operate in the Gulf, which accounts for around 10 percent of its production.
But Dudley said that the company was working on the assumption that it would not be found grossly negligent “and we are not provisioning for that.”
BP has sales agreements in place for around $14 billion of assets — around half the amount it has targeted to build up a war chest to pay for the spill.
Its own investigation into the accident admitted a share of the blame, but also laid responsibility on Transocean, which owned the drilling rig, and contractor Halliburton. It has also billed minority partners Anadarko Petroleum Co. and MOEX Offshore nearly $4.3 billion for their share of the accident.
BP said the board would consider whether to restore the company’s dividend payment to shareholders — the company scrapped the payment for the first three quarters of the year to free up cash for spill costs and to ease political and public pressure — before it announces full-year results in February.
“No decision will be taken until then, but the improving financial condition of the company and the strength of our disposal proceeds are encouraging,” said Chief Financial Officer Byron Grote.
Dudley, who has already announced a restructure of the company’s exploration and production unit into three parts and the creation of a new unit to police safety practices, said he would provide more detail on the company’s future strategy early next year.
He has spent the weeks since becoming CEO on Oct. 1 touring BP’s projects around the world, shoring up support from partners and investors. But he’s also put a firm emphasis on safety, meeting with experts from other hazardous industries, including the nuclear and chemical industries.
(© Copyright 2010 The Associated Press. All Rights Reserved. This material may not be published, broadcast, rewritten or redistributed.)