BP signals stronger second-quarter earnings as oil rally lifts margins and net debt falls

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BP signals stronger Q2 earnings

Highlights

BP expects Q2 oil production and operations earnings to rise by $1.8 billion to $2.1 billion and gas segment earnings to increase by $500 million to $700 million due to stronger prices.
BP projects net debt to drop to $22 billion–$23 billion by end-June from $25.3 billion in March, maintaining a reduction target to $14 billion–$18 billion by end-2025.
Citi raises BP's Q2 earnings-per-share forecast by 18% after BP anticipates approximately $1.2 billion–$1.4 billion uplift in refining margins and a slightly higher oil trading result.

Second-quarter earnings outlook and market drivers

As reported by Reuters, BP says stronger oil and gas prices, robust oil trading and higher refining margins are expected to lift second-quarter earnings, extending momentum from an energy price rally linked to the Iran war.

The company says stronger prices are expected to add $1.8 billion to $2.1 billion to earnings in its oil production and operations business compared with the first quarter. Its gas and low-carbon energy segment is expected to receive a further $500 million to $700 million boost.

BP also expects stronger refining margins to increase earnings in its products business by $1.2 billion to $1.4 billion. The company says its oil trading result should be slightly higher than the previous quarter's exceptionally strong performance.

Global benchmark Brent crude averaged around $97 per barrel in the second quarter, up from about $78 in the first quarter and about $67 a year earlier. The trading statement prompts Citi to raise its second-quarter earnings-per-share forecast for BP by 18%, while BP shares rise 2.6% by 0837 GMT, compared with a 1% gain in the broader European energy sector.

Debt reduction and production pressures

BP says upstream production is expected to fall in the second quarter to between 2.17 million and 2.22 million barrels of oil equivalent per day, from around 2.34 million boed in the previous three months, partly because of the effects of the crisis.

The company says net debt stands at $22 billion to $23 billion at the end of June, down from $25.3 billion at the end of March. BP keeps its target of reducing net debt further to $14 billion to $18 billion by the end of next year.

Overall, BP expects net debt, hybrid bonds and Gulf of Mexico settlement liabilities to decrease by a combined $6.3 billion to $7.3 billion from the previous quarter. Second-quarter results are also expected to include about $1 billion of impairments, mainly related to transition businesses in its gas and low-carbon energy division.

In our earlier article on BP insider share purchases via the ShareMatch UK Plan, we noted that several managers bought ordinary shares, which supported bullish sentiment during a rally that lacked a clear fundamental catalyst. We also highlighted that while the stock held above key moving averages, overbought readings and nearby resistance suggested the upside could be vulnerable without fresh company-specific triggers.

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