BP’s profit plunges to $2.7 billion amid oil & gas price headwinds

Despite ramping up their hydrocarbon production levels, all European and U.S. oil majors are in the same boat as their overall profits have felt the impact of the drop in energy prices, albeit some still fared better than others as illustrated by Eni (€1.58 billion or almost $1.7 billion) and Equinor ($7.53 billion), which recorded a 46% downturn in net profits on a year-over-year basis.

On the other hand, TotalEnergies ($5.1 billion) experienced a 22% fall in adjusted net profit y-o-y while ExxonMobil and Chevron reported $8.2 billion and $5.5 billion in 1Q 2024, respectively. Shell ($7.7 billion) saw a slump in profit of 19.8% on a year-over-year basis.BP revealed its results for the first quarter of 2024 on Tuesday, May 7, recording an underlying replacement cost profit of $2.7 billion in 1Q 2024, compared with $3 billion for the previous quarter and $5 billion in the first quarter of 2023

Compared with the previous quarter, the result is said to reflect lower oil and gas realizations, the impacts of the Whiting refinery outage, and significantly weaker fuels margin, partially offset by a considerably lower level of turnaround activity, a strong oil trading result, and higher realized refining margins. The underlying effective tax rate (ETR) was 43%.

According to BP, the reported profit attributable to its shareholders for 1Q 2024 was $2.26 billion, compared with $371 million for the fourth quarter of 2023 and $8.22 billion in the first quarter of 2023. The oil major highlighted that its operating cash flow in the first quarter of 2024 was $5 billion compared to $9.4 billion in 4Q 2023 and $7.6 billion in 1Q 2023, reflecting the difference in the underlying RC profit for the respective periods.

The company’s capital expenditure in the first quarter of 2024 was a loss of $4.28 billion, compared to $4.7 billion in 4Q 2023 and $3.63 billion in 1Q 2023. Total divestment and other proceeds for the first quarter were $0.4 billion, compared with $0.8 billion for the same period in 2023. The company’s net debt reached $24.02 billion at the end of 1Q 2024, compared to $20.9 billion in 4Q 2023 and $21.2 billion in 1Q 2023. This increase is mainly attributable to a working capital build.

BP completed a share buyback program of $1.75 billion on May 3, 2024. The company is committed to completing a $3.5 billion share buyback for the first half of 2024. The UK player claims that a resilient dividend is its priority within its disciplined financial frame, underpinned by a cash balance point of around $40 per barrel Brent, $11 per barrel RMM, and $3 per mmBtu Henry Hub (all 2021 real).

Kate Thomson, BP’s Chief Financial Officer, commented: “BP reported solid financial performance in the first quarter with adjusted EBITDA of $10.3 billion and underlying replacement cost profit of $2.7 billion. Our financial frame is unchanged, and we are delivering competitive shareholder distributions, announcing a $1.75 billion share buyback for the first quarter as part of our commitment of $3.5 billion for the first half of 2024.”

The energy giant set its cap on delivering at least $2 billion of cash cost savings by the end of 2026 relative to 2023. This reduction is expected to result from cost-saving measures across the firm’s business underpinned by high-grading the portfolio, digital transformation, supply chain efficiencies, and global capability hubs. However, some of these cost savings may have associated restructuring charges.

Regarding its Gas & Low Carbon Energy segment, the British player reported production of 914 mboe/d in 1Q 2024, 5.7% lower than during the same period in 2023. Underlying production was 3.5% lower, mainly due to base decline partially offset by major projects that came online in 2023. This includes the effect of the disposal of the Algeria business in 2023. The renewables pipeline at the end of the quarter was 58.5 GW, an increase of 0.2 GW net during the quarter. In addition, there are over 9.5 GW of early-stage opportunities in LSbp’s hopper.

BP has taken several steps to bolster its asset portfolio, including the agreement from February 2024 to form a new joint venture (JV) with ADNOC in Egypt to grow a highly competitive gas portfolio. To this end, the UK giant will contribute its interests in three development concessions, along with exploration agreements to the new JV while ADNOC will make a proportionate cash contribution that can be used for future growth opportunities.

During the same month, a floating liquefied natural gas (FLNG) vessel that is a core component of the Greater Tortue Ahmeyim (GTA) LNG project arrived at its destination on the Mauritania and Senegal maritime border. Come April, the company signed an agreement with the Korea Gas Corporation to supply up to 9.8 million tons of LNG over 11 years, starting in 2026.

Prior to this, Net Zero Teesside Power (BP 75% and Equinor 25%) and the Northern Endurance Partnership (BP 45%, Equinor 45%, and Total Energies 10%) announced the selection of contractors in March for engineering, procurement, and construction contracts with a combined value of around $5 billion.

BP’s reported oil production for the quarter was 1,463 mboe/d in 1Q 2024, 7.6% higher than the first quarter of 2023 while the underlying production for the quarter was 7.4% higher compared with the first quarter of 2023, reflecting energy performance and major projects, partly offset by base performance.

On April 116, the UK giant, as operator of the Azeri-Chirag-Gunashli (ACG) project, announced the start-up of oil production from the new Azeri Central East (ACE) platform, as part of the ACG field development in the Azerbaijan sector of the Caspian Sea, which is said to be the first remotely operated offshore platform in the Caspian.

Britain’s energy heavyweight also took a final investment decision on the Atlantis Drill Center Expansion, a two-well tie back to the Atlantis facility in the Gulf of Mexico. BP has been awarded a license for two blocks in the central North Sea, consolidating its position around the Eastern Trough Area Project (ETAP) central processing facility.

Recently, Azule Energy, a 50:50 joint venture between BP and Eni, agreed to acquire a 42.5% interest in exploration block 2914A (PEL85), Orange Basin, offshore Namibia. The completion of the deal is subject to customary third-party approvals from the Namibian authorities and JV parties.

Murray Auchincloss, BP’s Chief Executive Officer, highlighted: “We’ve delivered another resilient quarter financially and continued to make progress on our strategy. Oil production was up and our ACE platform in the Caspian is now producing.

“We are simplifying and reducing complexity across BP and plan to deliver at least $2 billion of cash cost savings by the end of 2026 through high grading our portfolio, digital transformation, supply chain efficiencies and global capability hubs.”

What is BP’s outlook for 2024?

Looking ahead, the UK-headquartered oil major expects its 2Q 2024 reported upstream production to be slightly lower than in 1Q 2024. Regarding its customers’ business, BP anticipates seasonally higher volumes and fuel margins to remain sensitive to movements in the cost of supply.

When it comes to products, the firm expects realized margins to be impacted by narrower North American heavy crude oil differentials, and to remain sensitive to relative movements in product cracks. In addition, the absence of the first quarter plant-wide power outage at the Whiting refinery is anticipated to be partly offset by a higher level of turnaround activity. 

Furthermore, the company still believes that both reported and underlying upstream production in 2024 will be slightly higher compared with 2023, with underlying production from oil production & operations predicted to be higher and gas & low-carbon energy lower.

While the oil major continues to expect a drop in industry refining margins, with realized margins impacted by narrower North American heavy crude oil differentials, refinery turnaround activity will have a similar impact on both throughput and financial performance compared to 2023, with phasing of activity in 2024 heavily weighted towards the second half.

Expectations for 2024 also entail the depreciation, depletion, and amortization to be slightly higher than 2023, and the underlying ETR for 2024 to be around 40%, said to be sensitive to the impact that volatility in the current price environment may have on the geographical mix of the group’s profits and losses.

Aside from this, BP’s capital expenditure for 2024 is anticipated to be around $16 billion but the phasing is expected to be split evenly between the first half and the second half while divestment and other proceeds are estimated at $2-3 billion in 2024, weighted towards the second half.

Having realized $18.2 billion of divestment and other proceeds since the second quarter of 2020, the UK giant expects to reach $25 billion of divestment and other proceeds between the second half of 2020 and 2025. The firm’s Gulf of Mexico oil spill payments for the year are anticipated to be around $1.2 billion pre-tax, including $1.1 billion pre-tax paid during the second quarter.