BP profits slashed in Q2

Weaker oil and gas prices and a cut in output due to an extensive maintenance programme hit BP's profits hard in the second quarter.

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 and losses or gains from stocks of crude oil and products, and is used to strip out the effect of volatile oil prices.

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The company reported 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.

BP said the results were impacted by weaker oil and US gas prices together with reductions in output due to planned maintenance, particularly affecting high-margin production from the Gulf of Mexico, and lower net income from TNK-BP.

It's share of net income from its troubled TNK-BP partnership was $700m lower than the first quarter, from $1.06bn to $363m.

The firm said this was driven by the impact of a rapid fall in oil prices amplified by the lag in Russian oil export duty, which is based on earlier higher oil prices.

But BP also took a pre-tax charge of $847m in the second quarter as it increased its provision for various costs and litigation relating the Gulf of Mexico oil spill.

By the end of the second quarter the company said it had paid a total of $8.8bn in individual and business claims and government payments arising from the Deepwater Horizon incident.

It intends to have completed $20bn of payments into the trust by the end of 2012.

Group Chief Executive, Bob Dudley, said recognised the company had had a weak quarter, but added it was making important investments that would enhance safety and reliability for the long term.

"Rebuilding trust with our shareholders and other stakeholders is vitally important," he said.

"We are making progress against the critical strategic and operational targets we have set ourselves and are confident that this will deliver long-term, sustainable value."

Dudley said that he expected earnings momentum to build in 2013 as the company completed payments into the Gulf of Mexico Trust Fund, as high-value production comes back on line, and as the impact of new projects ramps up.