BP back in profit but oil spill cost soars to $40 billion

BP has managed to overcome the costs of the Gulf of Mexico spill to swing back into the black in the third quarter.

The oil giant reported a $1.8 billion (£1.15 billion) profit versus a loss of $17 billion in the previous quarter. The third quarter numbers included an additional pre-tax charge of $7.7 billion for the Gulf of Mexico spill. The total costs for the spill now stand at a massive $39.9 billion.

A clearer indication of how the company is performing can be found in the firm's underlying performance, which excludes the costs of the spill. Here, higher oil prices helped the group deliver a $5.5 billion profit, up some 18% year-on-year.

BP gained some momentum from the results with its shares up 7p, or 1.65%, at 431p at 9.20am.

Commenting on the numbers new BP chief executive Bob Dudley, who replaced Tony Hayward at the height of the crisis, said: 'These results demonstrate that BP is well on track for recovery after the tragic accident on the Deepwater Horizon drilling rig and subsequent oil spill. We have made good progress during the quarter. This strong operating performance shows the determination of everyone at BP to move the company forward and rebuild confidence after the terrible events of the past six months.'

He added: 'We have also begun to make important changes in the way we operate across the group - including creating a powerful safety and operational risk function and restructuring the upstream segment - to ensure that safety and risk management are embedded as the absolute priority for every operation, for every person, throughout BP.'

The numbers will come as a boost to investors, who were dealt a huge blow when BP suspended its dividend earlier this year under intense pressure from the US government to deal with the spill. The figures leave the group on track to meet a previous indication it made that it would be in a position to restore the dividend early next year.

Brokers were mixed in their response to the numbers.

Among the more bullish was Evolution analyst Richard Griffith who said: 'We maintain our buy recommendation with a target price of 510p as we believe the true liability for the Macondo accident to be nearer $25-30 billion as opposed to the circa $60 billion the market is discounting.'

However, Seymour Pierce was more cautious in its assessment, pointing out the firm's debt position remains uncomfortable. It said: 'Net debt at the end of the third quarter was $26.4 billion compared with $26.3 billion a year ago.

'Given the continued uncertainty as to the ultimate financial liabilities generated by the Gulf of Mexico catastrophe and the implications that this has for future dividend payments (on which the board will make a decision in February next year) we retain a hold recommendation on BP.'