BP jumps after cutting debt despite impairments, helped by oil prices rally – UPDATE Proactive uses images sourced from Shutterstock
BP PLC (LSE:BP.) saw its shares top the FTSE 100 leaderboard after saying it expects higher oil and gas prices to offset lower production in the second quarter, while net debt is forecast to fall sharply despite a $1 billion impairment charge.
In a trading statement ahead of its second-quarter results scheduled for early next month, the oil giant said net debt is expected to fall by at least $2.3 billion from $25.3 billion at the end of the first quarter, after repaying €2.5 billion of hybrid bonds and making a $1.1 billion payment related to Gulf of America settlement liabilities.
Higher commodity prices are expected to lift earnings across the upstream business, with oil production and operations realisations set to add $1.8-2.1 billion compared with the previous quarter, while gas and low carbon energy realisations are expected to contribute a further $0.5-0.7 billion.
The customers and products division is also expected to benefit from seasonally stronger fuel demand, higher fuel margins and stronger refining margins worth an estimated $1.2-1.4 billion.
That improvement is expected to be partly offset by lower production, as oil production and operations are forecast at 1,420-1,450 thousand barrels of oil equivalent a day, compared with 1,541 thousand in the first quarter.
Refinery throughput is also expected to decline because of planned maintenance and lower volumes at the Whiting refinery following a third-party incident in April.
BP also expects exploration write-offs of about $0.5 billion, largely linked to the sale of the Bay du Nord project in Canada, while second-quarter results will include post-tax impairment charges of around $1 billion, mainly relating to transition businesses in its gas and low carbon energy segment.
Analysts at Jefferies said there was scope for consensus earnings forecasts to edge higher, as stronger refining and products performance looks like more than offsetting the Bay du Nord write-down.
The broker also highlighted better-than-expected cash generation, with net debt guidance of $22-23 billion versus the latest $23.7 billion consensus forecast.
** UPDATE: Adds share price and broker comments **