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* Takes another $1.4 bln in provisions on claims
* Compensation fund left with just $300 mln unaccounted for
* Ups cleanup, fines and compensation provision to $42.4 bln
* Q2 adjusted net $2.71 bln vs f'cast $3.41 billion
* Shares down 4.5 percent (Rewrites first paragraph, adds CEO comments, updates shares,writes through)
By Andrew Callus
LONDON, July 30 (Reuters) - BP is digging in for along legal battle over the Gulf of Mexico oil spill, ChiefExecutive Bob Dudley said on Tuesday after compensation costssoared for a second straight quarter.
The payouts, the scale of which BP is disputing even thoughthey are one part of the case that was settled last year, havebeen the focus of attention in recent months in a wider legalprocess that has saddled BP with a $42.4 billion clean-up, finesand compensation burden and could yet cost billions more.
BP has said some of claims being paid are "absurd" and"fictitious" and that the terms are being misinterpreted toallow businesses which had no spill-associated loss receivepayment. It has so far failed in all its attempts to stop them.
"As we continue to fight these absurd (compensation)outcomes and as the likelihood of extended litigation on othermatters increases ... we want everyone to know that we aredigging in and are well prepared for the long-haul on legalmatters," Dudley said at BP's quarterly results news conference.
The door is open to a wider legal settlement, he said, but"it's in the interest of our shareholders now to play it long".
The 2010 oil spill killed 11 men and despoiled the Gulf ofMexico coastline in the United States' worst offshoreenvironmental disaster.
The second quarter saw BP take another $1.4 billion inprovisions on claims against a $20 billion fund that financesthem, leaving the fund with just $300 million left unaccountedfor, even though the deadline to claim by Gulf coast businessesis not until April next year.
BP has said claims beyond what the fund can pay will betaken straight off future profits.
MISSES PROFIT FORECASTS
The company revealed the extra cost in its second-quarterresults, which missed profit forecasts due to the tax effects inRussia that the company said would even out over time, and othercurrency-linked tax effects.
BP's shares were down 4.5 percent in early afternoontrading, having tumbled to their lowest in a month.
Adjusted net profit for the quarter fell to $2.71 billioncompared with expectations of $3.41 billion and with $3.6billion a year ago. Profit was also hit by lower prices and bylower production - partly the result of asset sales to pay forthe costs of the spill.
The extra $1.4 billion of spill compensation costs come ontop of a $500 million addition in the first quarter and bringBP's estimate of the cost of claims so far to $9.6 billion.
Some $900 million is for extra claims, while about $500million is for the costs of the claims administrator, BP said.
BP is locked in a legal battle over the compensation payoutswith the administrator, Patrick Juneau. It says Juneau is payingout "fictitious" and "absurd" claims due to a misinterpretationof the settlement.
Last week, though, its legal campaign had appeared toreceive a boost when Halliburton Co, which was involvedin preparing the doomed Macondo well for production, abandonedone of its arguments that tried to paint the British oil companyas unconcerned about well safety.
FINAL BILL
BP also faces a resumption of its trial on civil charges inSeptember. It increased its overall provision for the cleanup,fines and compensation for the spill to $42.4 billion from $42.2billion. Analysts expect BP's final bill to be billions bigger.
The quarterly result was the first to include a contributionfrom its 19.75 percent stake in Rosneft, thestate-controlled Russian company, which BP acquired inpart-exchange for its 50 percent holding in Russian oil groupTNK-BP.
Analysts had expected a bigger contribution from the Rosneftstake. They said the tax-lag factor and the impact of a weakerrouble looked to have accounted for about $450 million of the$700 million shortfall.
A broader tax and currency effect of a stronger dollarraised the company's tax rate to 45 percent from 35 percent lastyear, accounted for the remainder.
"I think people will have to listen to what BP's got to sayon that (Russia) and try to digest how to forecast it," saidSantander analyst Jason Kenney. "The 45 percent tax rate wasalso a bit of a surprise ... they're saying a stronger U.S.dollar versus a basket of currencies, but we've not seen thiskind of swing in effective tax rates before.
"The core upstream division was actually ahead of consensusand that's still going great guns. The refining and marketingdivision is probably as expected," Kenney said. "Fundamentally,I think BP's still moving forward."
Underlying production of oil and gas excluding Russia -adjusted for divestments and production-sharing agreements -grew by 4.4 percent compared with the same period last year, asproduction from major projects in Angola and Norway ramped up.
Upstream production in the third quarter is expected to belower as a result of planned seasonal turnaround activity andcontinuing divestment impacts, BP said. (Editing by Sarah Young and David Holmes)
