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

Three sustainable stocks that are doing well by doing good
Share tips

Three sustainable stocks that are doing well by doing good

Professional investor Peter Michaelis of the Liontrust Sustainable Investment Team picks three stocks to buy that are helping to create a cleaner, saf…
26 Jul 2021
Share tips of the week – 23 July
Share tips

Share tips of the week – 23 July

MoneyWeek’s comprehensive guide to the best of this week’s share tips from the rest of the UK's financial pages.
23 Jul 2021
Will Zoom’s $15bn purchase help it expand?
Tech stocks

Will Zoom’s $15bn purchase help it expand?

The videoconferencing platform became a household name during the pandemic, but it now needs new sources of growth. Alex Rankine reports
23 Jul 2021
Philip Morris goes “beyond nicotine”
Stocks and shares

Philip Morris goes “beyond nicotine”

US tobacco giant Philip Morris International has agreed to pay £1bn for British inhaler specialist Vectura.
23 Jul 2021

Most Popular

The MoneyWeek Podcast: Asia, financial repression and the nature of capitalism
Economy

The MoneyWeek Podcast: Asia, financial repression and the nature of capitalism

Russell Napier talks to Merryn about financial repression – or "stealing money from old people slowly" – plus how Asian capitalism is taking over in t…
16 Jul 2021
Why the UK's 2.5% inflation is a big deal
Inflation

Why the UK's 2.5% inflation is a big deal

After years of inflation being a financial-assets problem, it is now an “ordinary things” problem too, says Merryn Somerset Webb. But central banks st…
16 Jul 2021
Three companies that are reaping the rewards of investment
Share tips

Three companies that are reaping the rewards of investment

Professional investor Edward Wielechowski of the Odyssean Investment Trust highlights three stocks that have have invested well – and are able to deal…
19 Jul 2021