BP profit sinks to near four-year low as oil demand falls

London — BP on Tuesday reported a 30% drop in third-quarter profit to $2.3bn, the lowest in almost four years, weighed down by weaker refining margins and oil trading results.

The decline was smaller than expected amid a slowdown in global economic activity and oil demand, particularly in China, but raises pressure on CEO Murray Auchincloss, who has vowed to boost BP’s performance amid investor concerns over its energy transition strategy.

“We’ve been making huge progress focusing and simplifying the business,” Auchincloss said. BP shares, which were trading 2.3% lower by 1142 GMT (1.42pm), have underperformed those of its rivals so far this year, falling 15% compared with a 2% decline for Shell and a 19% gain for ExxonMobil as investors question the company’s ability to generate profits. A 9% annual rise in BP’s debt levels has further worried investors.

The energy giant maintained its dividend at 8c a share after raising it in the previous quarter. It also kept the rate of its share buyback programme at $1.75bn over the next three months and committed to do so again for the next three months. BP will update its financial framework in February.

Auchincloss, who took up the job in January, has vowed to focus on high-margin businesses, distancing himself from predecessor Bernard Looney’s strategy to rapidly expand renewables and reduce oil and gas output.

BP has abandoned a flagship target to cut oil and gas output by 2030. The company has also scaled back its low-carbon hydrogen investments and plans to sell its US onshore wind operations. It is also considering selling a minority stake in its offshore wind business.

Low-carbon investments

Auchincloss said on Tuesday BP would bring in partners to offshore wind projects over time.

Auchincloss also said BP had the potential to grow oil and gas output through the end of the decade while it also continues to make high-grade investments in low-carbon and renewables.

“There still looks potential for a differentiated growth, driven out of fuels marketing, biogas and the core Upstream business, but it is unlikely that the market focuses on this potential until we get reworked financial targets,” Citi analysts said in a note.

BP’s underlying replacement cost profit, the company’s definition of net income, reached $2.27bn in the third quarter, exceeding forecasts of $2.05bn in a company-provided survey of analysts but down from $2.8bn in the previous quarter and $3.3bn a year earlier.

The results were the weakest since the fourth quarter of 2020, when profits collapsed during the pandemic.

BP’s oil and gas production rose 3% from a year earlier to 2.38-million barrels of oil equivalent per day, helping to offset a drop in refining margins and weaker oil trading. Higher natural gas prices further boosted earnings, though gas trading was average in the quarter, BP said.

Global oil refiners are seeing profitability drop to multiyear lows in a sharp reversal for an industry that had enjoyed surging postpandemic returns, underlining the extent of the current demand slowdown.

“Refining margins are dismal. The third quarter was a tough quarter, and the start of the fourth quarter is bad as well,” Auchincloss said.

Net debt rose to $24.3bn from $22.6bn at end-June, mostly due to the about $3bn in debt assumed following the completion of the acquisition of the outstanding 50% in its solar joint venture Lightsource BP last week.

Its debt-to-market capitalisation ratio, known as gearing, rose to 23.3% from 20.3% a year earlier.

Reuters