BP oil spill costs cut into 3Q profit

LONDON – BP PLC returned to profit in the third quarter but said it doesn’t plan to rush back into the Gulf of Mexico as it raised the likely cost of the devastating oil spill there by $7.7 billion to $40 billion.

The London-based company said the increased costs from the disaster dragged down third-quarter net income by more than 60 percent compared to a year ago, to $1.79 billion from $5.3 billion.

Several residents along the Gulf Coast were happy to see BP turning a profit, keeping the company afloat at least long enough to live up to their promise to compensate those affected by the spill.

“If that’s what it takes to make things right, then it’s a good thing,” said Louisiana fishing guide Mike Helmer. “That’s a much better scenario than them going bankrupt and everyone down here being left holding the bag.”

All the other major oil companies, except Chevron, have reported stronger third quarter profits thanks to higher oil and gas prices.

Still, BP saw an increase of 18 percent in underlying replacement cost profit – a key industry benchmark which strips out changes in the value of fuel inventories – to $5.5 billion, above the $4.6 billion forecast by analysts.

“What I can report today is that BP is now in recovery mode,” chief executive Bob Dudley, presiding over his first quarterly results since taking over from Tony Hayward a month ago, told reporters in London.

“Putting aside the incident … the BP group as a whole delivered a strong business performance throughout the quarter in terms of both financial and safety performance,” he added.

Dudley said BP was committed to operating in the Gulf of Mexico following the lifting of a U.S. government moratorium on drilling after the spill, but said the company would “step back” and look at its equipment and rigs in those waters before attempting to jump back in.

Dudley, who has already announced a restructure of the company’s exploration and production unit into three parts and the creation of a new unit to police safety practices, said he would provide more detail on the company’s future strategy in February.

The company’s exploratory Macondo well in the Gulf blew out on April 20, killing 11 workers and kicking off the worst oil spill in U.S. history. Oil kept gushing until July 15, but it took BP another two months – until Sept. 19 – to completely seal the well.

“Broadly, I expect the industry to get back to work sometime in 2011,” Dudley said, noting that new regulatory requirements for licenses were still under discussion.

Wells in the Gulf can be very profitable and taxes and royalties in U.S. waters are considered to be much lower than elsewhere in the world. Drilling projects there typically break even when oil sells for $50 to $60 per barrel. It’s currently trading near $82 per barrel.

Chevron and Shell have both submitted requests for projects since President Barack Obama lifted the drilling moratorium on Oct. 12.