OIL giant BP posted a 16pc rise in first-quarter net profits yesterday as gains from the sale of major assets to pay for the Gulf of Mexico oil spill outweighed the ongoing cost of the disaster.
But replacement cost profit, the measure most closely watched by analysts to indicate an oil company's health, fell 2pc as lower production and higher charges from the spill overrode the benefits of a rising crude oil price.
Net earnings of $7.2bn (€4.9bn) for the three months to March 31 compared with $6.2bn (€4.2bn) for the same period a year earlier. Revenue rose 18pc to $88.3bn (€60bn) after the company sold off more than $24bn (€16.3bn) in assets to pay for the Gulf spill.
Those asset sales led to a fall in production, however, lowering replacement cost profit to $5.48bn (€3.7bn).
The measure is closely watched by analysts because it excludes changes in the value of crude inventories and measures the amount it would cost to replace assets at current prices. It also excludes one-offs such as asset sales.
Chief executive Bob Dudley has been targeting higher growth exploration to reverse a 30pc drop in BP's share price since the April 20, 2010 explosion on the Deepwater Horizon rig which killed 11 men and caused the biggest offshore oil leak in US history.
The stock price was up 1.5pc at $7.80 in early afternoon trade on the London Stock Exchange, but continues to underperform the broader oil and gas sector amid uncertainty about the final spill costs and dismay over a botched Russian deal that is key for renewed growth.
"The group's future strategy is in disarray, with Russian partners feuding, while rivals such as Shell continue to steal ground," said Keith Bowman, equity analyst at Hargreaves Lansdown Stockbrokers.
"In all, investors believe that BP can recover from this dire chapter in its history, with market consensus opinion currently denoting a cautious buy," Bowman added.
"However, the group's share price performance summarises the group's difficulties and challenges ahead."
Jonathan Jackson, head of equities at Killik and Co, was more positive.
"Although the uncertainty in Russia and the US is likely to overhang the shares, we believe further divestments will continue to highlight the inherent value within BP's attractive portfolio of assets," he said. "We remain buyers."
The catastrophe in the Gulf caused BP to plunge to its first full-year loss in almost 20 years in 2010 and forced the resignation of chief executive Tony Hayward, who was at the helm when the disaster happened.
The first quarter results include a $400m (€272m) pre-tax charge for the oil spill, adding to $40.9bn (€27.8bn) set aside by the company last year.
BP last week sued Trans- ocean, the owner of the rig, and contractor Halliburton, for around $40bn each in damages, based on its estimates of its liabilities.
But the court cases are likely to take years and BP could face tens of billions of dollars more in fines and penalties if it is prosecuted.