BP’s second quarter sales fell from $47.3bn to $46.6bn. Underlying net profit (replacement cost) fell £0.4bn to $2.4bn compared to analyst forecasts of $1.8bn. Stronger results from oil trading and the customers business only partially offset lower oil prices.
Free cash flow was $1.5bn lower at $2.9bn reflecting the lower profit level as well as the adverse timing of receipts and payments. Net debt was $3.4bn higher at $26.0bn.
2025’s underlying production is still expected to be slightly lower than last year. Underlying corporate cost guidance has been reduced from $1bn to a range of $0.5bn-$1.5bn.
BP increased the quarterly dividend by 4% to 8.32c per share. A $750mn buyback was announced, $1bn lower than at the same point last year, but in line with the first quarter of this year.
The shares rose 1.3% in early trading.
Our view
BP’s stronger-than-expected second-quarter numbers helped investor sentiment build a little on the positive momentum leading up to the results. The optimism reflects a rebound in oil prices since the quarter end, but we’re also encouraged by the group’s efforts to streamline the business.
BP is refocussing on its core competencies of oil & gas extraction and has made some notable progress on fresh discoveries and new project start-ups. Modest plans to increase production combined with a fresh efficiency drive should help to boost performance, but it will take some time until output moves into positive territory.
As with all natural resource extraction, there’s never any guarantee that new sources of production perform as expected. It also means the company’s future profits remain intrinsically linked to oil & gas prices, over which it has no control. Prices have firmed in recent weeks, but macroeconomic uncertainty means there’s still some downside risks to be wary of in the near term.
The company’s efforts to make a success of investments in energy transition technologies have been met with limited success. There are some clear advantages to embracing the rise of electric vehicles, given the company’s existing network of service stations. But recent disposals and exits in areas such as wind power, hydrogen and carbon capture shows management’s commitment to decisive action in refocussing the business.
In the near term, shareholder distributions look to be taking a back seat as BP focuses on bringing down its debt levels. While the dividend yield of 6.1% looks to be sustainable, buybacks are tracking below the levels that shareholders have become accustomed to. As ever, no payouts are guaranteed.
With a clear financial framework now in place, there is scope for distributions to pick up materially further down the line. But that’s not guaranteed as there’s still a way to go to achieve a targeted reduction of net debt to below $18bn by 2027. The $20bn targeted from disposals by 2027 will help, but its underlying improvements in cash generation from the business we’d really like to see.
All in, BP’s valuation has strengthened on the hopes it gets back to basics, with its earnings multiple now ahead of some more financially robust peers. We think the strategic shift has some legs but there’s significant execution risk meaning there’s plenty of scope for downside shocks if BP misses its targets.
Environmental, social and governance (ESG) risk
Environmental concerns are the primary driver of ESG risk for oil and gas producers, with carbon emissions and waste disposal being the main issues. Health and safety, community relations and ethical governance are also contributors to ESG risk.
According to data from Sustainalytics, BP's overall management of material ESG issues is strong.
It appears to have strong oversight over its key ESG issues. Notably, the company aims to reach net zero emissions across its entire operations (Scope 1 & 2) on an absolute basis by 2050, and net zero for the carbon intensity of sold energy products by 2050.
BP’s recent strategy reset signals a change in approach to the transition. This includes increasing oil and gas investment by around 20% and decreasing investment in the transition business by more than $5bn. The company still aims to meet the net zero targets above.
Persistent controversies relating to environmental breaches continue to expose BP to legal and compliance risks, including significant financial penalties.
BP key facts
All ratios are sourced from LSEG Datastream, based on previous day’s closing values. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn’t be looked at on their own – it’s important to understand the big picture.
Article image credit: NurPhoto and Getty Images.
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