BP Signals Strong Q2 Earnings on High Oil Prices, Flags $1 Billion Low-Carbon Impairment

BP PLC on Tuesday signaled a strong second-quarter performance, driven by soaring energy prices, robust oil trading, and higher refining margins. The company anticipates, however, that the results will be tempered by a $1 billion impairment charge primarily related to its lower-carbon energy businesses.

A Quarter of Contrasts

In a quarterly trading statement, BP detailed the expected uplift to its earnings compared to the first quarter. The company attributed the gains to a commodity price rally sparked by geopolitical tensions that have disrupted global supplies.

Key expected boosts to Q2 earnings include:

• $1.8 billion to $2.1 billion in its oil production and operations business.
• $500 million to $700 million in its gas and low-carbon energy segment.
• $1.2 billion to $1.4 billion from stronger refining margins in its products business.

BP also said its oil trading result is expected to be slightly higher than the "exceptionally strong" performance seen in the first quarter. Alongside the impairment, the company anticipates exploration write-offs of approximately $500 million, mainly from the sale of its stake in Canada's Bay du Nord project.

Market Impact and Production

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The positive outlook lifted BP's shares by 2% in midday trading, outperforming a 1.1% gain in the broader European energy index. The update prompted analysts at Citi to raise their second-quarter earnings-per-share forecast for BP by 18%.

The strong financial performance comes amid a surge in commodity prices, with global benchmark Brent crude averaging around $97 per barrel during the quarter, up from about $78 in the first quarter. Despite higher prices, BP expects its upstream production to fall to between 2.17 million and 2.22 million barrels of oil equivalent per day (boed), down from 2.34 million boed in the previous quarter.

Balance Sheet and Analyst View

BP reported progress in strengthening its balance sheet, with net debt expected to be between $22 billion and $23 billion at the end of June, down from $25.3 billion at the end of March. The company said its combined net debt, hybrid bonds, and Gulf of Mexico settlement liabilities are expected to decrease by a total of $6.3 billion to $7.3 billion from the prior quarter.

Regarding the impairment, analysts at RBC speculated it could be linked to assets such as LightsourceBP and Archaea. In a note, they said they "see no place for either in BP’s portfolio long term," though BP has not provided specific details on the assets involved.