BP’s first quarter revenue increased by $5.3bn to $52.3bn, with most of the growth coming from the customers and products segment.
Underlying operating profit was up 40% to $6.3bn ($5.9bn expected) also driven by customers & products which benefitted from an exceptional oil trading result. Average oil & gas prices were down reflecting a time lag between the market and the price BP earns for its output.
Despite a deterioration in cash generation, free cash outflow nearly halved to $0.4bn due to a fall in capital expenditure. Net debt has risen by $3.1bn to $25.3bn since the year end.
The outlook remains broadly in line with previous guidance, but BP notes the full impact of disruption in the Middle East is yet to be determined.
BP declared a dividend of 8.32c per share. Share buybacks remain on hold.
The shares were up 3.0% in early trading.
Our view
BP’s first-quarter numbers were strong as it successfully navigated a volatile energy market, and investors responded well on the day. Its trading division, which helps customers secure energy supplies, has seen profits jump following the closure of the Strait of Hormuz.
It’s early days for new CEO Meg O’Neill, but so far we’ve not seen any signs of a radical shift in strategy. However, we see her plans to simplify segmental reporting and restructure group debt as signs of a disciplined approach.
BP is refocusing on its core oil and gas business. Recent discoveries and new project start-ups support a new goal of replacing oil reserves as fast as they come out of the ground by the end of 2027
As with all natural resource extraction, there’s a high degree of execution risk, and the company’s future profits remain intrinsically linked to oil & gas prices. Prices heading into the second quarter have been very supportive. Further out, we think market forecasts are for profits to drift back down again. We think estimates are on the conservative side but macroeconomic uncertainty could create further challenges.
Further out, we still see strong long-term demand for fossil fuels, but that may change as the energy transition gathers steam. Cost efficiencies should support the bottom line, but that may not be enough to boost profits if oil prices fall sharply.
One of O’Neill’s milestones at her previous employer was Woodside’s acquisition of BHP Petroleum. With oil prices under pressure, further consolidation in the sector can’t be ruled out. BP is most frequently seen as prey rather than the hunter. But in either case, operational improvements are what’s required for a strong position at the negotiating table.
Shareholder distributions are taking a back seat as BP focuses on bringing down its debt levels. While the 4.4% dividend yield looks sustainable, buybacks are off the table and are not expected to return this year. The buyback pause and $20bn disposal program could see net debt reach the target of $14-18bn in relatively short order. But until longer-term capital allocation priorities are defined, the outlook for payouts thereafter is unclear, with no further distributions guaranteed.
All in, BP’s valuation has strengthened on a strong start to the year, with its earnings multiple now ahead of some more financially robust peers. The revival in sentiment looks to have priced in further catalysts, such as a step change in strategic delivery or higher energy price expectations. Both are possible, but unless forecasts improve, we see some downside risk to the shares.
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. At the 2026 AGM, shareholders rejected BP's proposal to drop a set of climate and Paris Alignment disclosures previously agreed by shareholders in 2015 and 2019. This signalled that shareholders still value robust disclosure relating to transition risk.
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.
This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by LSEG. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.
This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment.