BP’s problem in the Gulf of Mexico is many things, including a scandalous waste of money. That much was clear from the headline figure accompanying yesterday’s second-quarter results announcement – a pre-tax charge of $32.2bn to cover the quantifiable cost of the clean-up. That is about half as much again as this year’s estimated replacement cost profit, and consists of $2.9bn spent so far and $29.3bn to come, including the $20bn committed to an escrow fund. It is the price, in lost revenues for exploration and development, lost dividends for shareholders and lost tax revenues for governments, of an entirely avoidable accident. When Big Oil screws up, it screws up big.
The scale of the charge was broadly in line with estimates, but the shares slipped slightly even though BP’s underlying performance was robust. The stock has surged recently amid optimism that the leak was being fixed. But BP investors remain shell-shocked – the company is worth nearly $70bn less today than on April 20, nearly twice the quantifiable cost estimate. That reflects uncertainty over the leaking well and, among UK shareholders, a degree of frustration with drift at the top. The tone of yesterday’s announcements, including confirmation of Bob Dudley’s replacement of Tony Hayward as chief executive, suggests a company finally beginning to assert itself in its battle with the elements – and much more – in the Gulf.
It is going to take time to see whether this new assertiveness recaptures lost value, since BP is about to become a very different company. It has raised targeted disposals from $10bn to $30bn, including last week’s $7bn sale to Apache, which represented 2 per cent of BP’s reserves. This slimmer BP could take many shapes, including a less-generous dividend when – or if – it resumes pay-outs in the fourth quarter. Investors are about to find out exactly how different the new BP is from the old one.