LONDON BP Plc (BP.L)'s announcement of a more than doubling of first-quarter net profits on Tuesday failed to ease investors' concerns about the impact of a worsening oil spill in the Gulf of Mexico, knocking the company's shares.
BP said replacement cost net profit, which strips out unrealised gains related to rises in the value of inventories, was $5.60 billion (3.65 billion pounds) in the quarter, up from $2.39 billion in the same period of 2009, thanks to higher oil and gas prices.
The underlying results were well ahead of forecasts but Chief Executive Tony Hayward acknowledged the focus would not be on the firm's continued financial recovery.
"They're a good set of numbers, clearly overshadowed by events," he said on a conference call with reporters.
BP's shares fell 1.8 percent to 617.8 pence, underperforming the STOXX Europe 600 Oil and Gas index .SXEP which was 1.4 percent down at 2:07 p.m..
The Macondo well in the Gulf of Mexico is leaking 1,000 barrels per day of crude after the rig that was drilling it exploded and sank, with the loss of 11 workers, who are now presumed dead.
BP hopes to activate a shut-off valve on the seabed in the coming days. The company is also constructing a steel canopy that could collect oil from the well head and take it to the surface, which would take four weeks to deploy.
If neither of these plans work, BP will have to stem the flow with a relief well it plans to drill in the coming days. The London-based company said it may also drill a second relief well to ensure the flow is stemmed.
Hayward said the relief well, which will cost $100 million and take two to three months to drill, would be the highest cost the company will face.
However, the cost of keeping dozens of boats and several planes on the clean-up operation for months, plus potential shoreline clean-up, possible fines, lawsuits and reputational damage, could send the final cost far higher.
"The situation in the Gulf of Mexico is now looking more pessimistic and it looks increasingly likely that it will take months rather than days to remedy. Ultimately, the costs associated with this accident will be proportional to the time taken," said Dougie Youngson, oil analyst at Arbuthnot.
The worst oil spill in U.S. history was caused when the Exxon Valdez ran aground in Alaska in 1989 and leaked 258,000 barrels of crude.
Exxon said it paid $3.5 billion in cleanup costs and also faced punitive damages of hundreds of millions of dollars.
SECTOR PROFITS SEEN HIGHER
BP said that excluding one-off items, which amounted to a net charge of $49 million, its replacement cost profit was $5.65 billion, ahead of an average forecast of $4.78 billion from a Reuters poll of nine analysts.
The rise in profits was due to a recovery of crude and gas prices from the recession-hit levels of 2009. Brent crude rose 72 percent to average over $76 a barrel over the first three months of the year.
BP managed to outperform expectations partly because it also managed to achieve much higher prices for its gas, despite a drop in European benchmark gas prices compared to the first three months of 2009.
One dealer said the better-than-expected results augured well for other oil majors such as Royal Dutch Shell Plc (RDSa.L), which reports its results on Wednesday.
Shell's London-listed "A" shares traded up 0.8 percent at 2,006 pence. French oil major Total's shares were up 0.4 percent at 42.49 euros.
Higher throughput at its refining unit also allowed the company to outperform expectations, although a halving of margins compared to the first quarter of 2009 meant the overall result was sharply lower.
The world's third-largest Western oil major by market value said oil and gas production was broadly flat compared to the same period of 2009, at 4.01 million barrels of oil equivalent per day -- just ahead of forecasts.
BP also said it had agreed to buy a 15.7 percent interest in oilfield Valhall and a 25 percent interest in Hod, both located in the southern part of the Norwegian continental shelf, from France's Total (TOTF.PA) for $991 million in cash.
It was the latest in a string of acquisitions by the oil major in recent months, after it agreed to pay Devon Energy (DVN.N) $7.0 billion for assets in Brazil, Azerbaijan and the Gulf of Mexico.
The London-based company also said it would pay $900 million for a 75 percent stake in the oil sands assets of unlisted Canadian company Value Creation.
The tie-up was announced last month but no details on price or stake size were revealed then.
(Editing by Rupert Winchester)