British oil major BP posted second-quarter profit down 45% as the global oil glut dragged down refining margins and revenue, prompting another cut to its 2016 investment budget to below $17 billion.
The result missed expectations, with analysts surprised by higher corporate charges, including administrative costs relating to Gulf of Mexico oil spill liabilities, and a lower contribution from BP’s stake in Russian oil producer Rosneft.
BP said that second-quarter underlying replacement cost profit, its most-watched profit measure, was $720 million, down from $1.3 billion in the same period last year and $120 million below an analyst consensus provided by the company.
Weak refining margins and lower oil prices ate into profits. BP said the refining margins hit a six-year low for the second quarter with the prospect of them remaining under significant pressure in the coming months.
“As we look forward, we expect the external environment to remain challenging,” said Chief Executive Bob Dudley.
Faced with a tough market outlook, BP continues to reduce costs and now expects full-year capital expenditure to come in below the $17 billion target it had previously given.
“We expect BP to underperform the wider peer group today on the earnings miss,” said RBC Capital Markets analyst Biraj Borkhataria.
“However, we think continued cost and capex deflation reads positively for the sector.”
The company maintained its quarterly dividend at 10 cents a share, reassuring investors in a sector valued for its consistent payouts. Though the industry’s woes have raised some concern about dividends only Italy’s ENI and Spain’s Repsol have cut investor payouts since the oil price collapse.
BP is on its way to drawing a line under the deadly 2010 Deepwater Horizon explosion and oil spill, which killed 11 workers. It said that total costs have reached $62 billion but the majority of claims have now been settled.
BP incurred a pre-tax charge of $5.2 billion relating to further Deepwater Horizon liabilities. Including these charges and other non-operating items, BP made a second-quarter loss of $1.4 billion, against a $5.8 billion loss a year ago.
With BP’s focus now returning to growth, it said that a pipeline of projects — now 70% complete — will add 500,000 barrels of oil equivalent a day by the end of 2017.
By the end of the decade, BP aims to extend that additional capacity to 800,000 bpd.