Higher oil prices helped paper over the cracks for BP in the second quarter, with net debt falling as the conflict in the Middle East lifted prices. Improved profitability provides a reason for optimism despite impairment charges.
BP expects second-quarter upstream production of 2,170 to 2,220 thousand barrels of oil equivalent per day, down from 2,339mboe/d in the first quarter, reflecting seasonal maintenance predominantly in the Gulf of America and the effects of disruption in the Middle East.
The lower production comes against a sharply stronger price backdrop, with Brent averaging $103.85 a barrel in the quarter, up from $81.13 in the first three months of the year.
Oil realisations are expected to boost results by $1.8bn to $2.1bn quarter-on-quarter, with gas realisations adding a further $0.5bn to $0.7bn.
One of the most pronounced impacts of the conflict in the Middle East and higher oil prices is stronger refining margins. The company’s indicator margin, which averaged $29.6 per barrel, up from $16.9 previously, is expected to contribute significantly to operating profit during the period.
This all means BP is able to reduce its net debt, which will be seen as a win by investors.
“One of the key worry points for investors over BP is its balance sheet. In that context, it’s not a surprise to see significant debt reduction get a warm reception,” said AJ Bell head of markets Dan Coatsworth.
“It wasn’t all good news. Production is lower thanks to maintenance work and Middle East disruption, and the refining business is still suffering a hangover from a fire at its Whiting refinery in Indiana.
“Ongoing volatility in oil prices makes forecasting the immediate outlook for the earnings of BP and its peer group difficult.”
Exploration write-offs of around $0.5bn are expected, primarily from the sale of Bay du Nord in Canada, alongside post-tax impairments of roughly $1bn, mainly in transition businesses within the gas and low carbon energy segment.