BP is currently navigating turbulent waters, as the oil giant grapples with a trifecta of challenges that promise to impact its earnings for the quarter ending in September. In a recent trading statement, the company disclosed that its refining margins have tumbled to an average of $16.5 per barrel during the third quarter, a stark decline from the $20.6 per barrel mark seen just three months prior. This dip is poised to translate into a staggering $400 million to $600 million reduction in earnings.
The difficulties don’t end there. BP has also reported weaker sales of fuel, anticipating a further blow of up to $300 million. Compounding these woes, increased exploration write-offs in oil and gas threaten to inflict another financial hit, estimated at up to $300 million. The company’s net debt figures are expected to exceed initial forecasts, partly due to the timing of proceeds from divestments, which are now anticipated to land in the fourth quarter rather than in the current reporting period.
For Murray Auchincloss, BP’s chief executive, this year has been fraught with challenges. Since stepping into the role back in January, Auchincloss has found himself urgently working to regain investor trust while steering the company back to its core business of oil and gas. Under his leadership, BP has recently sanctioned the development of a new oil field, Kaskida, located in the Gulf of Mexico, while simultaneously putting its U.S. onshore wind farms on the market.
The market seems unimpressed, with BP’s share price trailing behind its competitors and suffering a notable decline of over 12 percent year-to-date. Following the release of its trading statement, the company’s stock remained steady, failing to respond with any semblance of optimism.
Just last quarter, BP issued a warning regarding “significantly lower” refining margins, prompting Jefferies to slash its consensus earnings forecast by a staggering 20 percent. The company is now contending with potential losses of up to $1.5 billion due to a plan to scale back operations at its Gelsenkirchen refinery in Germany, which is slated to decrease output by about one-third starting in 2025.
Amid these tumultuous developments, analyst Giacomo Romeo from Jefferies has projected that the consensus earnings may now fall approximately 10 percent short of the previous forecast of $2.3 billion. Analysts are voicing growing apprehension over BP’s ability to sustain shareholder returns, particularly if oil prices—currently elevated due to the ongoing conflict in the Middle East—begin to dip next year as increased supply from producers comes to market.
HSBC’s Kim Fustier cautions that a projected benchmark Brent crude average of $76.5 per barrel may not suffice to underwrite BP’s ambitious $7 billion annual share buybacks projected from 2025 onward. The road ahead looks rocky for BP, as it contemplates a balance between market realities and investor expectations.