BP Reports $700 Million Loss Due to Hurricane Damage

Strategic Insights -

Oil giant BP has announced a significant hit to its third-quarter profit due to the damage caused by Hurricanes Katrina and Rita. The storms have resulted in a loss of $700 million, indicating a larger impact on oil production than initially estimated. BP's production fell by 145,000 barrels of oil per day due to the damage, a stark contrast to analysts' estimates of less than 100,000 barrels.

Key Takeaways:

  • BP has calculated a total economic cost from Hurricanes Katrina and Rita, with the damage expected to strip $700 million from its third-quarter profit.
  • The storms have damaged or uprooted offshore drilling platforms, and closed refineries in the Gulf of Mexico, which is the heart of the U.S. oil-refining industry.
  • BP's third-quarter production fell by 145,000 barrels of oil per day due to storm damage, a significant increase from analysts' estimates of less than 100,000 barrels.
  • Royal Dutch Shell's Mars oil platform, which has a capacity of 250,000 barrels a day, may not be back online until the second half of 2006, with recovery teams still working on Shell's four platforms in the area.
  • Oil companies have tried to play down the impact of the storms to avoid higher oil prices, with BP executives disagreeing with this statement.
  • The U.S. Coast Guard reports that Katrina destroyed, damaged, or sank about 50 of the 4,000 platforms in the gulf.
  • One-fifth of U.S. refining capacity was shut down for the week after Hurricane Rita.
  • Oil prices rose 25 percent in the last three months due to supply disruptions, but have started to drop as consumers adopt conservation measures.

Statistics:

  • BP's loss due to Hurricane damage: $700 million
  • Reduction in BP's third-quarter production: 145,000 barrels of oil per day
  • Analysts' initial estimate of damage: less than 100,000 barrels of oil per day
  • Total refining capacity shut down after Hurricane Rita: one-fifth
  • Increase in oil prices in the last three months: 25 percent
  • Current price of crude oil for November delivery: $63.65 a barrel

Sources:

  • Bloomberg News
  • U.S. Coast Guard
  • Oppenheimer analyst Fadel Gheit
  • BP spokesperson Toby Odone
  • Goldman Sachs estimate of BP's net income for the year: $23.6 billion