Big dividend payers take a hit: Battered BP expected to follow Shell with profits fall

By JON REES, FINANCIAL MAIL ON SUNDAY

Updated: 06:51 EST, 19 January 2014

Rising costs: Analysts are forecasting profits at BP to fall 8 per cent to $23.5billion

Oil giant BP is expected to report a fall in profits, with City traders fearing it has been hit by the same rising costs that prompted Shell to issue a profits warning on Friday.

Shell said last week it had made less money than forecast in the last three months of 2013. It now expects profits for the quarter to be $2.2billion (£1.37billion), with the whole of 2013 likely to be down to $16.8billion – a fall of nearly 40 per cent on the previous year.

The Anglo-Dutch company’s problems stem in part from higher exploration costs, while sales volumes and prices were lower. Shell was particularly affected during the quarter since about a fifth of its energy network was out of service for maintenance.

BP is also expected to be hit by a number of the same issues, with the City forecasting profits to fall 8 per cent to $23.5billion.

One analyst said: ‘BP has already put out a statement noting that its exploration expenses for the fourth quarter will be higher than previously expected. Chevron has said it has had issues with the weather. BP will be facing similar issues.’

BP is supporting its share price by buying back its own shares and has bought more than 80 million so far this month, spending nearly £400million to do so.

At its full-year results next month, BP is also expected to update the market on its US legal problems following the explosion at its Deepwater Horizon oil rig in the Gulf of Mexico in 2010, which resulted in the death of 11 workers and led to the biggest offshore oil spill in US history.

This week will see the end of the second phase of a trial in New Orleans that will decide how much oil leaked into the Gulf and examine BP’s efforts to stop the flow. BP and the US government will put final arguments to the judge on Friday.

BP claims 3.26million barrels of oil leaked into the Gulf, while the US government claims it was  4.9 million. The difference is crucial since the eventual fine BP will pay will be based in part on the amount of oil spilled. BP’s chief executive, Bob Dudley, said last week that the company had set aside $40billion to settle all the costs associated with the case.