BP’s Deepwater bill to hit profits

The on-going compensation saga at BP over the Deepwater oil spill continues to weigh on BP's profits.

BP has rattled investors by increasing its provision for compensation claims arising from the Deepwater oil spill of 2010. The amount set aside for payouts to private-sector plaintiffs was increased from $7.8bn to $9.6bn in the second quarter. The ultimate cost of the settlement would be "significantly higher", warned the oil giant, because many claims have yet to be received and processed. Claims can be made until next April.

BP continues to fight the claims administrator's interpretation of the compensation settlement in court, as it thinks it is too generous and has given rise to "fictitious" claims. The $20bn overall compensation fund is almost gone now, and future claims will hit profits. Meanwhile, the group's second-quarter profits of $2.7bn were 33% down on a year ago, due to a fall in oil prices and a low rouble, which dented its Russian earnings.

What the commentators said

Has BP been stitched up? The contrast between "the dragnet that has caught BP" and the light treatment of America's Halliburton, which also worked on the well, is stark, said Alex Brummer in the Daily Mail. Halliburton "failed to pour the right concrete at the well", covered up its errors and lost the paperwork. Yet its fine of $200,000 is worth "about ten minutes of claims against BP".

But BP must at least share the blame, as The Daily Telegraph pointed out. In a "highly politicised situation" there was always a risk of falling victim to spurious claims. Yet BP seems to have been careless in its approach to drawing up the settlement. "Failures to define key terms, such as revenues and the lack of a financial cap on the deal, raise questions about attention to detail".

This mess is all the more depressing, said Brummer, because Deepwater aside, the "simpler, slimmer BP" that has emerged is looking promising. The tie-up with Rosneft is solid and the group "appears to have lost none of its traditional skill in finding reserves" witness a big discovery in India and 11 new exploration projects. If it weren't for the Louisiana drama, BP could almost be considered "a growth stock".

Recommended

The MoneyWeek Podcast: picking stocks is fun, but you need to do your homework
Investment strategy

The MoneyWeek Podcast: picking stocks is fun, but you need to do your homework

John Stepek talks to Steve Clapham, investor, analyst and author of The Smart Money Method, about the dangers in picking individual stocks and why you…
8 Apr 2021
BP looks set to return more money to shareholders as it beats expectations
Energy stocks

BP looks set to return more money to shareholders as it beats expectations

Oil major BP is to embark on a share buyback programme after significantly reducing its debts. Saloni Sardana looks at what it means for your portfoli…
6 Apr 2021
Deliveroo has hit the market – but it’s not getting the warmest welcome
UK stockmarkets

Deliveroo has hit the market – but it’s not getting the warmest welcome

Food delivery company Deliveroo made its debut on the stockmarket this morning. But with the share price sliding by 30% straight away, it’s not made t…
31 Mar 2021
Three stocks to buy now that will come back stronger after Covid-19
Share tips

Three stocks to buy now that will come back stronger after Covid-19

Professional investor Ed Wielechowski of Odyssean Capital, chooses three compelling stocks that should thrive in a post-pandemic world.
29 Mar 2021

Most Popular

Central banks are rushing to build digital currencies. What are they, and what do they mean for you?
Bitcoin

Central banks are rushing to build digital currencies. What are they, and what do they mean for you?

As bitcoin continues to soar in value, many of the world’s central banks are looking to emulate it by issuing their own digital currencies. But centra…
8 Apr 2021
Nuclear power might never be popular – but now looks a good time to invest
Commodities

Nuclear power might never be popular – but now looks a good time to invest

Nuclear power gets a very bad press, but it is the ultimate renewable energy source. Interest in it is perking up again, says John Stepek. Which means…
9 Apr 2021
How to find companies that can thrive in the post-Covid world
Advertisement Feature

How to find companies that can thrive in the post-Covid world

Many sectors of the global economy will return to something resembling pre-pandemic status, but others will take far longer to recover.
8 Apr 2021