BP swings to massive $17.2 billion loss

LONDON (CNNMoney.com) -- BP posted a massive quarterly loss of $17.2 billion Tuesday due to costs stemming from the Gulf of Mexico oil disaster.

BP (BP) said it took a pretax charge of $32.2 billion in the quarter related to the oil spill, the worst in U.S. history.

That charge includes the $20 billion fund the company agreed to set up in June to cover damages related to the spill. The charge is "based on the belief that we are not grossly negligent," said BP chairman Carl-Henric Svanberg, during a call with analysts.

Whether BP is guilty of gross negligence will ultimately be decided in the court.

If the embattled company is found at fault for recklessness, it will be liable for all penalties and fines -- if not, it will only have to pay a portion of the fines.

The rest of the fines would be paid by Anadarko Petroleum, which owns 25% of the well, and Mitsui Oil Exploration, which owns 10%. Both companies are BP's minority non-operating partners in the ruptured well.

As long as BP is not found grossly negligent, Oppenheimer energy analyst Fadel Gheit said the steps BP has taken will allow the company to pay their share of the fines, and still reinstate the dividend to shareholders soon.

"BP has gone through the budgeting process and made the necessary decisions, because it doesn't want to get forced into doing something it's not ready for," Gheit said. "The market is going to be able to breathe much easier."

In addition to the countless claims and ongoing investigations, BP said the Securities and Exchange Commission has launched a separate informal probe into "securities matters" related to the incident.

The SEC declined comment.

The second-quarter results were the first look at company's financials since the BP-leased Deepwater Horizon oil rig exploded on April 20, killing 11 people.

They were a far cry from the year-ago period, when BP posted a net profit of $4.4 billion for the three months ending in June.

In a bid to make a fresh start and turnaround its reputation, the company announced a long-awaited change in leadership Tuesday, replacing CEO Tony Hayward with Robert Dudley, the American who has been overseeing the day-to-day Gulf spill response since June.

"I do not underestimate the nature of the task ahead," Dudley said. But he said the company's financial standing, along with its asset portfolio, would help put BP "on the road to recovery."

The transfer of power to Dudley was widely expected and a welcomed move.

"Dudley's reputation is that of a cool-headed troubleshooter. He's been in charge of the oil spill clean up for the last month or so, and he's been doing a good job," said Alex Morris, energy analyst at Raymond James. "The fact that he's an American will also help deflect some of the pressure BP has been getting out of Washington.

The disaster has taken a heavy toll on BP, wiping billions off its market value. But BP stock has bounced recently, gaining 8% over the last five trading days, amid expectations of Hayward's departure.

Excluding non-operating items and the $32.2 billion oil spill charge, BP posted an underlying replacement cost profit of $5 billion for the quarter, up 70% from $2.9 billion in same period last year.

"There was a huge range of expectations coming into the quarter, but it looks like sans oil spill costs, BP had a decent quarter," Morris said. "The results show that BP is still one of the largest oil and gas companies with solid operations around the world."

BP is aiming to put the Gulf disaster behind it. It wants to pay the majority of the direct oil-spill costs by the end of the year, but it conceded that it will face indirect damages for some time.

"Other costs are likely to be spread over a number of years, including any fines and penalties, longer-term remediation, compensation and litigation costs," Hayward said.

The company said it was not possible to accurately estimate the extent of future claims.

BP may have to pay fines to the U.S. government for violating the Clean Water Act. Some estimates put that tally as high as $18 billion. Legal challenges and other penalties are also likely to cast a shadow over the company for some time.

The oil giant said it is taking steps to make sure it has the funds necessary to cover future costs, including cutting its debt and unloading assets over the next 18 months.

BP said it plans to sell up to $30 billion of assets. That includes the $7 billion in oil and gas properties it recently sold to Apache Corp. (APA, Fortune 500)

Though the asset sales are a little higher than Morris was expecting, he said they should give BP sufficient financial flexibility to deal with future oil spill costs and liabilities.

"Every step they've announced seems to be one in the right direction," Morris added.

The company also plans to lower its net debt to between $10 and $15 billion over the period. By comparison, its debt was $23 billion at the end of last month.

BP said it will consider reinstating its dividend in February 2011. Under heavy pressure, the company in June suspended its quarterly dividend for the rest of the year.

Capital spending through next year will be about $18 billion annually, in line with earlier estimates, the company said.

-- CNNMoney.com staff reporter Hibah Yousuf contributed to this report.