BP Plc (BP/) Chief Executive Officer Bob Dudley said it’s unlikely Europe’s second-biggest oil company will reach a settlement with the U.S. over the Gulf of Mexico disaster as provisions set aside to pay for the spill rose.
“It’s highly unlikely we are now going to enter into detailed settlement discussions,” Dudley told reporters in London today. “We’re digging in for the long term.”
BP fell the most in a year on Dudley’s remarks and after second-quarter profit dropped more than analysts expected. The company lost a bid this month to halt payments to spill victims that it says are being unjustly awarded and today raised its estimate for the accident’s total cost to $42.4 billion. The final bill is still uncertain three years after the blowout at the Macondo well.
“The loss claims have really been misinterpreted from the agreement that we signed in good faith,” Dudley said in a Bloomberg Television interview. “We’re going to fight this.”
BP slipped 3.4 percent, the steepest decline since July 31, to 451.45 pence in London.
Separate to the legal issues surrounding claims from the settlement with spill victims last year, BP is in the middle of a three-phase trial with the U.S. government over liability in the spill that could lead to as much as $17 billion in fines under the Clean Water Act. The final stage of the trial probably won’t start until next year, BP said.
‘Play It Long’
“We’ve always said we’re open to a fair and reasonable settlement, and that’s what we think we did last year,” Dudley said. “Unfortunately, some of the circumstances that are happening today suggest that it may be in the best interest of our shareholders now to play it long.”
BP said second-quarter earnings, adjusted for one-time items and inventory changes, fell to $2.7 billion from $3.6 billion. That missed the $3.4 billion average estimate of 13 analysts in a Bloomberg News survey.
While BP’s results were hurt by weaker oil prices, higher tax rates and lower income from Russia, Dudley said the company is making progress on bolstering output from its most profitable regions.
The stock is up 6.3 percent this year, compared with a 4.2 percent gain for Royal Dutch Shell Plc (RDSA), Europe’s largest oil company, and 8.2 percent at Exxon Mobil Corp. (XOM:US)
BP is still down more than 25 percent since the Gulf spill started in April 2010. Exxon, Shell and Chevron Corp. (CVX:US) report second-quarter earnings later this week.
BP’s effective tax rate was “unusually high” at 45 percent in the quarter, compared with 35 percent a year earlier, in part because of the effect of the stronger dollar on a basket of currencies, the company said.
Since the spill, Dudley has completed a $38 billion asset sale program a year ahead of schedule and repositioned the company in Russia by selling BP’s half of the TNK-BP venture. The deal left BP with about 20 percent of state-backed OAO Rosneft (ROSN) and $12 billion in cash, most of which will be used to buy back $8 billion in shares. The company has repurchased about $2.4 billion in stock so far.
Lower oil prices in the second quarter pushed down revenue. Brent crude averaged $103.35 a barrel in the period, 5 percent lower than a year earlier. BP’s production of oil and gas outside Russia slipped 1.5 percent from a year earlier. Adjusted for the impact of asset sales, output grew 4.4 percent from a year earlier, the company said.
Income from Russia was hurt by the depreciating ruble and the lagged effect of a duty on oil exports, BP said.
“BP’s numbers are going to be relatively disappointing compared to their peers,” said Jason Gammel, an analyst at Macquarie Capital Europe Ltd. in London. “The contribution from Rosneft was less than expected, and the tax rate was very high, which can be a pretty big deal on the bottom line.”
Global production was 3.2 million barrels of oil equivalent a day, the company said. Output will probably be lower in the third quarter because of maintenance and divestments, it said.
BP said in February that underlying oil and gas production should increase this year after being little changed in 2012. Reported output will decline as divestitures shave off 150,000 barrels a day.
After agreeing to a deal with spill victims last year, BP says it has been forced to add hundreds of millions of dollars to the initially estimated $7.8 billion cost of the settlement. Today it increased the charge for that settlement to $9.6 billion to reflect the cost of claims and litigation in the second quarter. That doesn’t include future claims, which BP says can’t be reliably estimated.
On July 19, a judge refused to temporarily halt payments from the court-supervised settlement while Louis Freeh, the former director of the Federal Bureau of Investigation, probes allegations of misconduct in the program.
BP contends two lawyers working for the settlement administrator, Patrick Juneau, improperly took fees from law firms while processing their clients’ claims. The staff attorneys were ousted after the alleged improper payments came to light.
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