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BP PLC's lifted its estimate of the likely cost of its Gulf of Mexico oil spill to $40-billion (U.S.) on Tuesday, denting profits, but its underlying performance beat all expectations on higher refining margins and a lower tax rate.

BP, the world's biggest non-government controlled oil company by production last year, said delays in capping its blown-out well prompted the increased charge for ending the leak, cleaning up the damage and compensating those affected.

The charge, up by $7.7-billion, pushed third-quarter replacement cost profit, which strips out unrealized gains or losses related to changes in the value of fuel inventories, down 63 per cent to $1.8-billion.

Stripping out one-offs, including the oil spill costs, the underlying results rose 18 per cent, compared to the same period in 2009, to $5.53-billion, well ahead of an average forecast $4.60-billion from a Reuters poll of seven analysts.

The tax rate on underlying profit was 25 per cent, down from 29 per cent in the same period last year.

The better-than-expected results, and comments that the oil giant plans to consider reinstating its dividend in 2011 - something it had only hinted at - lifted BP's shares.

"I think with regards to BP, a lot of the uncertainty is out of the way, and it is slowly but surely getting back to business," Manoj Ladwa, senior trader at ETX Capital, said.

However, BP's performance still lags peers.

Royal Dutch Shell PLC reported an 88 per cent rise in underlying third quarter net profits and Exxon Mobil, the largest western oil major by market value, reported a 55 per cent rise in net income.

While most of BP's peers lifted output in the quarter, BP's production fell 4 per cent, compared to July to Sept. 2009, to 3.76 million barrels of oil equivalent per day, due partly to dislocation related to the oil spill.

Analysts had expected BP to register an extra charge related to the oil spill in the third quarter, after delays in capping the well for good, but most had expected a figure of around $2-3 billion.

The final cost of the oil spill could be far larger, or smaller, than the $40-billion charge BP has taken.

Anadarko Petroleum and Japan's Mitsui own 35 per cent of the blown out well and they are contractually obliged to share the costs. However, they are claiming that this obligation is void because BP was grossly negligent.

Accounting rules require BP to ignore any recoverable payments that are not certain so it is possible that the partners do, in the end, pay up to 35 per cent of the total cost.

However, if gross negligence is proven, then BP will face the entire $40-billion bill alone, and would face additional federal fines of around $17-billion.

BP shares are down 34 per cent since before the spill, representing a loss in market capitalization of over $60-billion, which many analysts believe exceeds the likely final bill.

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Tickers mentioned in this story

Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 27/03/24 6:40pm EDT.

SymbolName% changeLast
BP-N
BP Plc ADR
-0.29%37.46
XOM-N
Exxon Mobil Corp
+1.04%114.97

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