BP revealed it had taken a bit of a financial knock in its most recent quarter today, as it battles low oil prices and aims to move on from the Deepwater Horizon tragedy.
The oil giant reported underlying replacement cost profit – the key measure of profitability for the sector – of $720m (£550.4m) for its second quarter of 2016, down from $1.3bn for the same period last year but up from $532m in the last quarter.
Meanwhile, BP also reported underlying operating cash flow for the quarter of $5.5bn and revealed it predicted full year capital expenditure for 2016 would be unlikely to go above $17bn.
Shares in the company are trading down 1.9 per cent at 432.1p at time of writing.
Why it's important
The Deepwater Horizon oil spill, which killed 11 workers and gushed nearly 5m barrels of oil into the Gulf of Mexico, may have taken place more than five years ago, but BP has been paying the costs since. However, the company has recent made some progress, including arriving a certain key settlement figures in court, to give it some certainty of what the total costs will be for the future.
Charges booked through this quarter's accounts bring liabilities for the incident to $61.6bn.
Beyond Deepwater, the industry at large has also been battling with low oil prices, which dipped below the $45 per barrel mark yesterday but average $46 per barrel during the period being reported on. Although this is better than the $34 average in the first quarter of the year, it is some way below the $62 average from a year earlier.
Still, at least BP can take comfort in the knowledge that Royal Dutch Shell is likely to reported the effects of low oil prices in its trading statement, due later this week.
What BP said
Bob Dudley, BP group chief executive, said:
We are very pleased to have finally drawn a line under the material liabilities for Deepwater Horizon. We will always be mindful of what we have learned from that tragic accident.
BP today is a stronger, more focused and more disciplined company. We continue to actively develop a strong, balanced portfolio and we are managing the business for value over volume. Our relentless group-wide focus on capital and cost discipline is helping BP to become much more efficient while maintaining the investment needed for future growth.
What analysts said
"The Gulf of Mexico oil spill is still looming large in BP's operations, but the company now believes it has drawn a line under its liabilities," said Nicholas Hyett, equity analyst at Hargreaves Lansdown. "While there has been some recovery in the oil prices since the lows seen earlier this year, it is still about $5 to $10 shy of where it needs to be for BP to break even."
Hyett continued: "If prices do recover, BP's lower cost base will serve it very well, and profits ought to recover rapidly, but for now, cost cutting is simply serving to limit the damage."
The effects of a devastating tragedy combined with low oil prices played out in black and white