Second-quarter operating revenue rose from $46.6bn to $69.1bn, reflecting strong growth in all divisions.
Adjusted replacement profit jumped 143% to $5.7bn ($5.1bn expected) mainly due to higher oil and gas prices. The improved profitability drove a $4.9bn increase in free cash flow to $7.8bn.
Net debt fell by 15% to $22.3bn, and the interim dividend was raised 4% to 8.66 cents per share.
Third-quarter guidance points to some softness with Middle East disruption, and seasonality is likely to impact production as well as volumes in BP’s customer-facing businesses.
The shares rose 1.1% in early trading.
Our view
BP’s second quarter was boosted by higher energy prices but also contained details on recent efforts to streamline the portfolio. With many of those initiatives well trailed ahead of the results, the initial reaction to the announcement was low-key, and comments by management later in the day suggested there’s much work still to be done to get BP on a firmer footing.
It’s early days for new CEO Meg O’Neill, but she’s wasted little time in clearing out the closet with biogas producer Archaea the latest operation over which BP’s placed a for sale sign, just a few years after acquiring the asset for around $4bn.
We support the decisive action being taken to bolster the returns profile, but cut too deep, and the balance between simplification and underinvestment could quickly become harder to strike. The increase in capital expenditure guidance was encouraging, suggesting BP is prepared to be patient rather than sell down oil and gas assets at unattractive prices.
These operations are now the main focus of the business, with recent discoveries and new project start-ups supporting the 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 in the second quarter have been very supportive, and extreme volatility makes the current quarter hard to call. Further out we think estimates are on the conservative side, but macroeconomic uncertainty could still create further challenges.
Shareholder distributions are taking a back seat as BP focuses on bringing down its debt levels. While dividends are creeping up, buybacks are still off the table. That pause, plus a $20bn disposal program, should see net debt reach the target of $14-18bn in 2026, faster than previously expected. 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 benefited from a supportive price backdrop and no-nonsense approach from the new CEO, 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 given the execution challenge and ongoing exposure to external factors, we’d like to see more tangible signs of progress before turning more positive.
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.