BP said today it expects the cost of the Deepwater Horizon oil disaster to be $7.7bn (£4.8bn) bigger than previously thought, pushing the total bill to nearly $40bn.
The oil giant announced the new charge to cover the cost of the Gulf of Mexico spill alongside its financial results for the third quarter of the year. It blamed the delays that dogged its attempts to seal the leak, along with higher clean-up costs and legal fees.
The new charge knocked BP's pre-tax profits for the third quarter of 2010 down to $1.8bn, compared with $4.98bn a year ago.
In late July BP set aside $32.2bn to cover the cost of the clean-up, more than the City had expected, a move which pushed the company into a record loss of $17bn for the second quarter of 2010. At that time, though, the Macondo well was still leaking oil into the ocean, and was only finally shut off in mid-September.
Richard Hunter, head of UK equities at Hargreaves Lansdown Stockbrokers, said the additional $7.7bn provision was "a stark reminder that the fallout from the spill will follow BP for some considerable time to come".
The final cost of one of the worst environmental disasters ever could climb further. BP said that the total charge of $39.9bn was its "current best estimate of those costs that can be reliably measured at this time".
So far, BP has actually paid $11.6bn in total costs since the incident, but still faces ongoing clean-up charges, compensation claims, and probably a multi-billion dollar fine from the US government.
BP owned 65% of the Macondo well with two partners owning the remainder – Anadarko Petroleum with 25%, and Mitsui with 10%. BP has billed Anadarko and Mitsui a total of $4.29bn, but admitted that both companies are "withholding payment in light of the investigations surrounding the incident".
Separately, Mitsui revealed today it had received a $1.9bn bill from BP to cover some of the clean-up costs of the spill.
Underlying performance impresses
When the costs of the oil spill were excluded, BP's operating profits for the quarter were 18% higher than a year ago at $5.5bn. Chief executive Bob Dudley, in his first results announcement since taking over from Tony Hayward, said they showed BP was "on track" to recover from the disaster.
"This strong operating performance shows the determination of everyone at BP to move the company forward and rebuild confidence after the terrible events of the past six months," Dudley said.
BP also said that it would reconsider its current dividend freeze in February 2011.
Richard Griffith, analyst at Evolution Securities, said BP's underlying performance was better than expected.
Shares in BP rose by 1.5% this morning to 430p, around a third lower than their value before the Deepwater Horizon rig exploded in April.
(Republished with permission)