BP Plc reported a record loss after taking a charge for the Gulf of Mexico oil spill, the worst in U.S. history.
The second-quarter net loss of $17.2 billion compared with a profit of $4.39 billion in the year-earlier period. Chief Executive Officer Tony Hayward resigned and Robert Dudley will succeed him on Oct. 1, the London-based company said in a statement today.
Dudley’s challenge will be to overcome cleanup costs and liabilities from the environmental disaster, which analysts expect to exceed $30 billion. BP is selling assets, reducing investment and cutting the dividend to pay the bills after the spill wiped 45 billion pounds ($70 billion) off the company’s market value.
“It’s all about getting a clean slate,” Peter Hitchens, an analyst at Panmure Gordon & Co. in London, said before the results were published. “They’ll do the kitchen sink job to get it all out of the way at the start rather than a drip drip that will distract from future earnings.”
Hayward faced public anger in the U.S. and criticism from lawmakers over his handling of the leak that was triggered by an April 20 explosion on the Deepwater Horizon rig, which killed 11 people. Dudley, 54, was born in New York and grew up in Mississippi, part of the Gulf Coast region suffering environmental and economic damage from the spill. BP on June 23 appointed him to manage its response to the leak.
BP returned to work on permanently plugging the well after a storm threat eliminated an opportunity to seal the gusher more securely by the end of this month. The so-called static kill will pump mud from the top of the Macondo well next week, National Incident Commander Thad Allen said July 25. That will be followed by mud and cement injections from the bottom using a relief well.
The three-month long spill has cast a cloud over the oil company’s future, with some analysts speculating BP could be broken up or taken over. At the very least, it’s likely to result in a slimmed down company following the asset sales.
Chairman Carl-Henric Svanberg agreed with President Barack Obama on June 16 to set up a $20 billion fund to pay for cleanup and liabilities.
BP said last week that it sold $7 billion of assets in the U.S., Canada and Egypt to Apache Corp. It also plans to sell holdings in Pakistan and Vietnam. BP may revive the sale of fields in Alaska after they failed to make it into the Apache deal, two people with knowledge of the matter said last week.
New York oil futures averaged $78.05 a barrel in the second quarter, an increase of 31 percent from a year earlier, boosting revenue for oil producers.
In the first quarter, BP’s profit more than doubled from a year earlier. In March, the company agreed to buy $7 billion of assets from Devon Energy Corp. in the Gulf of Mexico, Brazil and Azerbaijan.
Refining margins are also picking up after averaging $5.49 in the second quarter from $3.08 in the first three months of the year, according to BP.
“The underlying performance should be quite okay in a commodity price environment that’s been supportive in the quarter and refining margins that held up well,” Dirk Hoozemans, who helps manage the equivalent of $19.4 billion at Rotterdam-based Robeco Group and doesn’t hold BP shares, said before the report was released.
Even if most of BP’s global operations are profitable, Dudley, who will be the first American head of the former U.K. state oil company, will need to convince politicians BP should be allowed to keep drilling in the U.S. The Gulf is home to about 25 of the 40 production projects BP plans by 2015.
For BP to “remain a strong and viable in the U.S., it has a great deal of work to do,” Dudley said in an interview last month.