BP Profit Beats Market Views Despite Weaker Refining Margins — 2nd Update

By Christian Moess Laursen

BP's underlying profit rose in the second quarter, beating market forecasts after higher volumes offset significantly lower refining margins, while impairments of $2.77 billion dragged the statutory result.

Higher oil and gas prices in the three months to June have helped European energy majors partly absorb hits from weaker refining margins so far this reporting season.

British energy giant BP on Tuesday beat market views with $2.76 billion in underlying replacement-cost profit compared with consensus of $2.54 billion and last year's $2.59 billion as its upstream unit pumped out 8.2% more oil and gas in the quarter.

The metric, preferred by BP and comparable to the net income that U.S. oil companies report, reflects the replacement cost of supplies and excludes exceptional items and any movement in value of the company's oil-and-gas inventory.

Last week, Italy's Eni and Portugal's Galp lifted their full-year targets after beating forecasts on increased hydrocarbon production and improved prices, which in Eni's case offset weaker refining and chemical products margins. France's TotalEnergies missed market views with a 7% slip in net profit after production declined 1% in the quarter and downstream earnings slumped 34% on lower refining margins.

BP said it expects lower refining margins throughout the year relative to last year, with realized margins hit by narrow North American heavy crude-oil differentials.

On a statutory basis, London-based BP swung to a replacement cost loss of $16 million due to a $1.5 billion charge from impairments and one-off provisions, including those from a review of its Gelsenkirchen oil refinery in western Germany. It also took a $1.34 billion impairment related to the refinery last year. BP said in March that it planned to close one-third of the crude-processing refinery's 265,000-barrels-a-day capacity due to a weakened demand outlook. The charge was flagged earlier this month, although BP said total impairments for the quarter could amount to up to $2 billion.

It also booked a $900 million hit from after-tax fair-value adjustments.

The rise in underlying profit reflected an average gas marketing and trading result, lower refining margins, and a significantly lower level of turnaround activity in the customers and products unit being offset by an increased output of oil and gas and lower taxation, BP said.

Continuing to stick to its ambitious shareholder-return commitments, Europe's third-largest oil-and-gas producer by market value lifted its dividend payout by 10% to 8.00 cents a share, while extending its share buyback program to $1.75 billion in the third quarter.

"Our decision to increase our dividend by 10%, and extend our buyback program commitment to 4Q 2024, reflects the confidence we have in our performance and outlook for cash generation," Chief Financial Officer Kate Thomson said.

BP's net debt narrowed by $1.40 billion from the first quarter to $22.61 billion, largely due to operating cash flows improving by 61% to $8.10 billion in the period. The size of the debt has been flagged by some analysts as possibly concerning investors about plans for shareholder returns next year.

"Rising net debt has been seen as an issue for BP's investment case and so the reduction this quarter should be welcomed," RBC Capital Markets said in a note following Tuesday's results.

Its replacement-cost before interest and tax--another closely watched metric--dropped to $2.57 billion from $5.085 billion a year prior, missing the $5.54 billion that market analysts had forecast, according to a BP-compiled consensus.

This was due to all segments except one booking losses for the quarter. The oil production and operations segment--usually BP's main profit center--garnered $3.27 billion, largely in line with what analysts had expected. Its gas and low-carbon energy division reported a $315 million loss.

Through the quarter, BP produced 8.2% more hydrocarbons at 1.48 million barrels of oil-equivalent barrels a day, while its gas and low-carbon energy output fell 0.5% to 899,000 barrels a day compared with the same period last year.

It expects its oil-and-gas production to be lower in the current quarter, while still anticipating a slightly higher output for the year.

BP said it would move ahead with its Kaskida deepwater oil field in the Gulf of Mexico. The site is expected to produce 80,000 barrels of crude oil a day once it's fully operational.

It also said it had moved ahead with plans to produce green hydrogen at its Castellon refinery in Spain, while it continues to assess other biofuels projects in Australia and the Netherlands. Green hydrogen is produced without the use of fossil fuels. The Castellon site will develop and produce industrial-scale sustainable aviation fuel and green hydrogen, for which BP sees growing demand, it said.

This comes at a time when the European biofuels market has weakened significantly as prices have cooled and competition has intensified. Both BP and its London rival Shell paused biofuels investments recently. Over the long term, however, analysts expect biofuels demand to pick up, partly helped by regulatory requirements.

Biofuels could have opportunities as replacements for fossil fuels in segments where electrification is developing or not currently practical, UBS analysts said in a recent note.

Last month, BP took full ownership of its Brazilian biofuels joint venture, BP Bunge Bioenergia.

"Our recent go-ahead of the Kaskida development in the Gulf of Mexico business, and decision to take full ownership of BP Bunge Bioenergia while scaling back plans for new biofuels projects, demonstrate our commitment to delivering as a simpler, more focused and higher-value company," Chief Executive Murray Auchincloss said Tuesday.

Write to Christian Moess Laursen at christian.moess@wsj.com

(END) Dow Jones Newswires

July 30, 2024 06:49 ET (10:49 GMT)

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