BP share price up, Q2 profit slumps, cuts planned full-year capex

British oil and gas company BP Plc reported on Tuesday a sharp drop in second-quarter profit as lower oil prices hit its upstream operations, while the company took a multi-billion charge related to the 2010 Gulf of Mexico oil spill.

BP said that underlying replacement cost profit, its definition of net income and analysts preferred measure, slid 64% in the three months ended June to $1.3 billion from $3.6 billion the previous year, also trailing analysts projections of $1.64 billion.

The firm reached an $18.7-billion settlement with the US government and five states earlier this month to resolve most claims related to the Deepwater Horizon disaster, taking total liabilities linked to the oil spill to $54.6 billion. BP took a $9.8-billion pretax charge related to the settlement which helped push the group to a pretax loss of $6.27 billion for the quarter.

Like other oil companies, BPs earnings have suffered from the past years steep drop in crude prices, which fell from $110 per barrel a year earlier to about $60 in the second quarter and are currently down to little over $50 per barrel. The companys upstream arm, which focuses on oil production, generated a replacement cost profit of $228 million, compared to $4.05 billion a year earlier and $372 million in the first quarter.

Lower oil prices also negatively affected BPs earnings from its 19.75% stake in Russias Rosneft, net income from which almost halved to $510 million in the second quarter from $1 billion a year earlier. Earnings also took a hit from a $600-million writedown of the companys exploration operations in Libya due to security issues amid an ongoing armed conflict in the African country.

However, second-quarter performance received a boost by the companys downstream arm, which handles refining and trading, continuing a trend from the first quarter. Better refining margins, helped by cheaper crude, helped the downstream business generate $1.63 billion in replacement cost profit, sharply up from $933 million a year earlier but still lower compared to the first quarters exceptionally strong $2.08 billion.

Expected to be taken as positive by investors, BP slashed its capital spending outlook for the full year to below a previously projected $20 billion, while it continues to focus on efficiency programs intended to keep costs in control.

“The external environment remains challenging, but BP moved quickly in response and we continue to do so,” said Chief Executive Bob Dudley. “In the past few weeks oil prices have fallen back in response to continued oversupply and market weakness and the recent agreements regarding Iran. I am confident that positioning BP for a period of weaker prices is the right course to take, and will serve the company well for the future.”

BP Plc traded 1.81% higher at GBX 394.30 per share at 09:31 GMT in London, marking a year-on-year drop of 20.64%. The oil and gas company is valued at £70.60 billion.