It’s been a complicated and contradictory quarter for oil giant British Petroleum. The struggling corporation has failed to reduce debt in the second quarter, with total profits falling by 5 percent compared with last year. Despite these lackluster numbers, BP has actually exceeded analysts’ projections by a wide margin, recovering more quickly than expected despite a plethora of project failures and major expenditures.
In response to their failure to decrease or even stabilize their ballooning debt, the company has now slashed its market forecasts to $50 a barrel over the next five years. This is a considerable cut from their previous projection, which optimistically saw oil returning to $60 a barrel before the end of 2017. While the global market did peak at over $56 a barrel earlier this year, this number has been stymied by high production of shale gas in the U.S. and a global supply glut, bringing prices back below $50.
Part of BP’s woes is their continued and costly struggle to bounce back from 2010’s devastating Gulf of Mexico oil spill, on which they’re still making hefty payments. Thanks in large part to the accident, the company’s debt has now risen to a reported $39.8bn at the end of June as compared to $30.9bn at that time last year. Related: Did The Arab Spring Disarm OPEC?
In addition to the continued financial hardships relating to the Gulf spill, BP recently took a huge hit when they cancelled a massive project in Angola, causing their profits to plunge by more than 50 percent since the beginning of the year. Profits on a replacement cost basis dropped from $1.5bn in the first quarter to $684m, but this actually exceeds average analyst expectations, which hovered around $500m thanks to June’s Angola fiasco, when BP gave up its 50 percent stake in gas exploration of the coast of the African nation after it was decided to be commercially unattractive.
Despite these major setbacks, BP has a lot of new projects underway, and shares this quarter were actually buoyed by a 10 percent increase in oil and gas production. BP is also trying hard to push into new markets, including an effort to move away from its dependence on fossil fuels in the context of an increasingly unpredictable market that shows no sign of stabilizing in the future.
This initiative has included talks with producers of electric vehicles as part of a plan to establish battery re-charging docks at its fuel service stations across the globe. Like many other oil giants, BP is threatened by the looming rise of electric cars and instead of fighting the changing tides, are trying to cash in on the movement. According to industry estimates, demand for some fossil fuels may plateau before 2030.
BP’s case is a prime example of the conflict rocking the entire industry. Across the market, numbers and expectations are low and the future is uncertain. BP isn’t the only oil giant that beat out analyst forecasts this quarter - Total and Royal Dutch Shell also surpassed expectations by a comfortable margin - showing that the oil industry continues to be marked by uncertainty and volatility that even the experts just can’t get a handle on. In light of this, it’s really no surprise that the oil industry is turning more and more to embrace a future where oil becomes virtually obsolete.
By Haley Zaremba for Oilprice.com
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