BP Reports Steep Fall in Profits, Missing Analyst Estimates in Q3

BP Reports Steep Fall in Profits, Missing Analyst Estimates

Introduction

London-based oil major BP has reported a significant year-on-year decline in profits, failing to meet analyst expectations.

Third Quarter Performance

In the third quarter, BP recorded an underlying replacement cost profit, used as a proxy for net profit, of $3.293 billion. This marks a decrease from the $8.15 billion profit reported during the same period last year, but an improvement from the $2.59 billion profit in the second quarter.

Analysts had predicted a profit of $4.059 billion for the third quarter, according to estimates by LSEG.

As a result of the disappointing earnings, BP’s London-listed shares fell by 4% in early trading.

Factors Affecting Performance

The growth in quarterly profits was primarily driven by an increase in oil and gas production, higher realized refining margins, and a strong oil trading result. However, this growth was partially offset by a weak gas marketing and trading result. BP also highlighted impairments of $1.2 billion, including a $540 million impairment charge related to U.S. offshore wind projects.

Capital expenditure for the quarter amounted to $3.603 billion, down from $4.314 billion in the previous quarter. Operating cash flow was higher both quarterly and year-on-year, reaching $8.747 billion.

In addition, BP announced a $1.5 billion share buyback to be executed before the release of the fourth quarter results.

Analyst Reaction and Industry Trends

Commenting on the results, Biraj Borkhataria, associate director of European research at RBC Capital Markets, noted that earnings missed across all divisions despite solid operational indicators. Borkhataria mentioned that while the 20% net profit miss may come as a surprise, BP has previously reported exceptional gas trading results in recent years.

The second quarter saw a substantial decline in profits for BP and other energy majors due to weaker fossil fuel prices. However, prices have since rebounded, leading to record annual profits for BP and others in 2022.

Outlook and Leadership Changes

Looking ahead, BP expects production restrictions from OPEC members and a demand rebound to support oil prices. The company also anticipates significantly lower industry refining margins in the fourth quarter.

In September, BP faced leadership challenges with the sudden departure of CEO Bernard Looney, who resigned after admitting he had not been fully transparent about past relationships with colleagues. CFO Murray Auchincloss is currently serving as interim CEO. Additionally, the company’s U.S. boss, Dave Lawler, announced his resignation without further details.

Despite these challenges, BP’s share price has remained resilient, gaining 15.8% in the third quarter and nearly 12% year-to-date, according to LSEG data.

Conclusion

BP’s third quarter results reflect a decline in profits, falling short of analyst estimates. While the company experienced growth in oil and gas production and improved refining margins, weak gas marketing and trading, as well as impairments, impacted overall performance. BP remains optimistic about the future, with expectations of production restrictions, a demand rebound, and lower industry refining margins in the fourth quarter. The company continues to navigate leadership changes while maintaining shareholder confidence.

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