BP shares fall with little progress expected in Q2 2024

Energy giant BP has released its trading statement for the second quarter of 2024, offering a glimpse into slowing production rates in its upstream business while static oil price offer little in the way of encouragement for investors.

BP shares were 3.47% lower at the time of writing.

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“A teaser ahead of second-quarter results later this month from BP suggests they won’t be a winner,” said Russ Mould of AJ Bell.

In the upstream sector, BP forecasts production levels to remain largely stable compared to the previous quarter. However, the company’s gas and low carbon energy segment may face headwinds, with an anticipated adverse impact of around £0.1 billion due to declining non-Henry Hub natural gas prices.

This setback is expected to be partially offset by an average performance in gas marketing and trading.

The oil production and operations segment presents a more positive outlook. BP projects a favourable impact ranging from £0.1 to £0.3 billion, primarily driven by price lags on its production in the Gulf of Mexico and the UAE. This boost could provide a welcome counterbalance to challenges in other areas.

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BP’s customers and products segment paints a mixed picture. While the company expects stronger fuels margins and improved convenience store performance, these gains may be overshadowed by significantly lower refining margins.

Oil refining margins boomed during the period of higher energy prices after Russia invaded Ukraine but those days are firmly in the rearview mirror now.

BP estimates an adverse impact of £0.5 to £0.7 billion in this area, mainly due to weaker middle distillate margins and narrower North American heavy crude oil differentials. However, the absence of the Whiting refinery outage, which cost the company about £0.5 billion in the first quarter, should provide some relief.

BP anticipates post-tax adverse adjusting items related to asset impairments and onerous contract provisions, ranging from £1.0 to £2.0 billion. This includes charges stemming from the ongoing review of the Gelsenkirchen refinery in Germany, which was announced in March.

“BP’s second-quarter update revealed that upstream production is now likely to be broadly flat compared to the first quarter, an improvement over the slight fall expected in previous guidance,” said Derren Nathan, head of equity research, Hargreaves Lansdown.

“But BP’s integrated model means there are a lot of moving parts, and they haven’t all been pointing in the same direction. Higher margins at the pump have been tempered by weaker selling prices for some refined products in the customer segment. There shouldn’t be too much change, if any, to analyst expectations off the back of this statement.

“BP’s focus has been a little scattergun of late, but it’s likely to remain an important part of the energy mix for some time to come. It still has one eye on the energy transition, and there appears to be little downward pressure on the oil price in the immediate future. This should keep both cash flow and generous distributions to investors flowing. At sub 8x earnings and with a yield of 5%, the shares are worth a look.”

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