BP Flags $1 Billion Writedown From Low Carbon Business

The BP Plc logo Photo by Jason Alden /Bloomberg

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(Bloomberg) — BP Plc said it expects to write down another $1 billion from energy transition assets in the second quarter, as the British major continues the painstaking work of re-orientating itself toward its core oil and gas business. 

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At the same time, oil trading, a cornerstone of BP, gained “slightly” from what was an exceptional first quarter, the London-based company said in an update on Tuesday. That will likely help it post bumper earnings next month, analysts said. 

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The update comes as new Chief Executive Officer Meg O’Neill pushes the company back toward fossil fuels. Since taking over on April 1, she has reorganized leadership and reporting structures, consolidating her authority following the departures of the chairman, deputy CEO and other leaders.

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The impairment charges follow BP’s up to $5 billion of energy transition writedowns earlier this year, around when BP also suspended its share buyback program in an attempt to shore up its balance sheet.

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BP said it cut its net debt in the quarter to between $22 billion and $23 billion, excluding hybrid bonds and leases. The company is targeting a net debt reduction to under $18 billion by next year. 

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Refining margins also improved, driven by disruptions in the Middle East and Russia that have tightened fuel supplies. 

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While the impairments “were not ideal, we see these offset by stronger than expected downstream performance as well as another exceptional oil trading quarter, with net debt coming down,” Barclays analysts including Lydia Rainforth said in a note on Tuesday.

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BP shares rose about 3% in early London trading, in line with crude futures and slightly outperforming European peers Shell Plc and TotalEnergies SE. For the year, BP has outperformed Shell, while lagging Total.

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Operations

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BP’s overall oil and gas production fell in the quarter due to maintenance in the US and disruptions in the Middle East. For the full year, BP expects reported upstream production to be lower due to disruptions around the Persian Gulf.

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The company has about 400,000 barrels of daily production across Iraq, Oman and the United Arab Emirates. It hasn’t disclosed what share is offline but has previously said it has been shipping some of its Abu Dhabi barrels through the Fujairah terminal in the Gulf of Oman to avoid the Strait of Hormuz chokepoint.

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In downstream, the widening spread between fuel prices and the cost of crude has pushed the processing margins to $29.60 a barrel, BP said, up from $16.90 in the previous quarter. BP estimates that every $1-a-barrel change in the refining margin adds about $550 million of annual pretax operating profit.

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Fuel-processing margins remain sensitive to the cost of supply and conditions in the Middle East, BP said.

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(Adds debt level, analyst comment and shares beginning in the fifth paragraph.)

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