BP's profit down amid spill costs

Oil giant BP on Wednesday reported nearly $5.5 billion in first-quarter profits, a dip compared to the same period last year that reflects reduced production and the costs of the Gulf of Mexico spill.

The London-based company’s fortunes are closely watched on Capitol Hill, where BP has been a frequent target of lawmakers since last year’s blowout of the Macondo well that dumped an estimated 4.1 million barrels of oil into the Gulf.

BP reported $5.48 billion in replacement cost profits — a key metric — compared to nearly $5.6 billion in the first quarter of last year. But profits rose compared to the last quarter of 2010.

Major oil companies including Exxon Mobil Corp. and Chevron Corp. are expected to report big profits this week — bounty that the White House and Capitol Hill Democrats have wrapped into their political messaging as they push for repeal of industry tax incentives.

The BP earnings statement shows that lower oil-and-gas production — stemming from a number of assets the company shed to help pay for the spill and the Gulf of Mexico drilling freeze — ate into profits from the recent oil-price surge. Production was 11 percent lower than the same period last year.

“The primary additional factors impacting the first-quarter result, compared with the same period last year, were lower production volumes (including from the impact of divestments), higher costs (including rig standby costs in the Gulf of Mexico), higher exploration write-offs and a lower contribution from gas marketing and trading,” the company said in a statement.

Other factors affecting production included maintenance in the North Sea and Angola and the recent interruption in the Trans-Alaska Pipeline system.

The company did, however, report a big jump in earnings from its refining and marketing division.

The earnings statement includes a $400 million pre-tax charge for costs connected to the spill, which adds to the nearly $41 billion in such charges in 2010 (a figure that included the $20 billion BP agreed to commit to a compensation fund for spill victims).

The earnings report acknowledges that the ultimate costs of the spill — which will likely subject BP to huge civil penalties — are unknown. It states:

“The total amounts that will ultimately be paid by BP in relation to all obligations relating to the incident are subject to significant uncertainty and the ultimate exposure and cost to BP will be dependent on many factors. Furthermore, the amount of claims that become payable by BP, the amount of fines ultimately levied on BP (including any determination of BP’s negligence), the outcome of litigation and arbitration proceedings, and any costs arising from any longer-term environmental consequences of the oil spill, will also impact upon the ultimate cost for BP.”

—This post was updated at 8:58 a.m.