BP shares slump as third-quarter profits dip

BP (LSE: BP) shares fell at the London open following a notable drop in third-quarter profits. Despite a rise in statutory pretax profit, the underlying replacement cost profit plummeted by 60% to $3.29 billion from $8.15 billion a year earlier. This decline, contrary to analysts’ expectations, caused BP shares to tumble 5.1% to 500.00 pence.

The British multinational oil and gas major also announced a fresh $1.5 billion share buyback programme, mirroring the amount disclosed with its second-quarter results in August. BP’s move aims to mitigate the impact of the profit downturn and stabilize shareholder confidence.

In Gas & Low Carbon Energy, third-quarter total hydrocarbons production dwindled to 946,000 barrels of oil equivalent per day from 981,000 barrels, with average realizations plummeting to $36.82 per barrel of oil equivalent per day from $60.80. Meanwhile, in Oil Production & Operations, total hydrocarbons production saw a slight uptick to 1.38 million barrels per day from 1.32 million. However, average realizations dropped significantly to $56.76 per barrel from $86.83, reflecting market challenges.

Interim Chief Executive Officer Murray Auchincloss commented, “This has been a solid quarter supported by strong underlying operational performance demonstrating our continued focus on delivery.” Auchincloss highlighted recent achievements, including the commencement of Tangguh Expansion, bpx energy’s ‘Bingo’ central processing facility, and Archaea Energy’s first modular biogas plant in Indiana.

BP’s decision to initiate a $1.5 billion share buyback is part of its strategy to allocate surplus cash flow generated in 2023, aiming to distribute 60% of the company’s earnings to shareholders. The buyback programme will run until February 2, providing investors with potential long-term benefits.

Additionally, BP announced a third-quarter dividend increase, rising to 7.27 US cents from 6.00 cents a year earlier, underscoring its commitment to shareholders amidst challenging market conditions.

Looking ahead, BP anticipates support for fourth-quarter oil prices due to OPEC+ production constraints and sustained demand rebound. However, European gas and Asian liquefied natural gas prices are expected to be influenced by weather patterns, demand recovery in Europe and China, and geopolitical tensions. In the US, weather conditions pose a risk, but higher storage levels and increased production are anticipated to mitigate potential volatility. BP also cautioned that industry refining margins are likely to be considerably lower than in the third quarter.

The company expects fourth-quarter Upstream production to remain relatively stable compared to the third quarter. Looking to 2023, BP anticipates higher reported and underlying upstream production compared to 2022. Specifically, underlying production from Oil Production & Operations is expected to rise, while production from Gas & Low Carbon Energy may see a slight decline.

Based on current forecasts, BP remains committed to delivering share buybacks of approximately $4.0 billion per year, falling within its $14 billion to $18 billion capital expenditure range. The company also plans to continue its tradition of an annual dividend increase of around 4%, emphasising its commitment to shareholder value despite market challenges.