BP was expected to benefit from higher refining margins in the third quarter, but the period wasn’t straightforward for the company, which is still managing the decline of its green energy business.
BP has outlined a sharp fall in net debt and stronger refining margins in the third quarter, though it will take up to $4.5bn in impairments, largely from its low-carbon businesses.
The oil major, in a trading statement ahead of its results on 30 October, said net debt would fall to between $13.5bn and $14.5bn by the end of September, down from $22.3bn three months earlier, a reduction of around $8bn, helped by asset sales.
Including hybrid bonds, leases and other liabilities, it expects total reductions of around $9bn to $10bn.
But trading conditions were mixed. Oil prices were lower, with Brent crude averaging about $97 a barrel in the quarter, down from around $104, which will weigh on its upstream earnings. But refining margins strengthened significantly, which BP expects to boost its products business by between $1.9bn and $2.1bn, and its gas trading performance was strong.
Its customer-facing business, however, was hit by weaker fuel margins.
“BP spent years trying to reinvent itself as an energy company, and this quarter it looks set to have made its money being a very good refinery. Oil prices slipped, but Middle East disruption sent refining margins soaring, though some of that looks to have been given back on the forecourt,” said Alex Pugh, Analyst, Freetrade.
“BP isn’t pumping much more oil and gas than it was a year ago. This looks like a strong quarter, but most of the help came from events outside its control, and if, or when, the Middle East calms down, refining margins could fall as fast as they rose.”
BP flagged post-tax impairments of $3bn to $4.5bn, mostly related to transition businesses within its gas and low-carbon energy division, as the company backs away from its earlier green ambitions and renews its focus on oil and gas.
Interestingly for investors, BP will set out a comprehensive strategy update in December.
With BP shares near 600p and the US President committed to bringing oil prices down, the rest of the year may not be as fruitful for investors after a 36% year-to-date rally.