31st Oct 2023 14:31
(Alliance News) - BP PLC's third quarter numbers may have improved from the second quarter, but they still have missed market expectations, an analyst wrote on Tuesday.
This follows a "tumultous year or so" including a reset to its strategy and the departure of former chief executive officer Bernard Looney, according to RBC Brewin Dolphin analyst Stuart Lamont.
Shares in BP were down 3.8% to 506.60 pence each in London on Tuesday afternoon.
In the third quarter of 2023, underlying replacement cost profit fell 60% to USD3.29 billion from USD8.15 billion a year earlier, although the third quarter read improved from USD2.59 billion in the second quarter. BP said analysts estimated third quarter underlying replacement cost profit would be higher at USD4.01 billion.
Statutory pretax profit multiplied to USD7.31 billion to USD1.98 billion, however. Revenue fell 6.6% to USD54.02 billion from USD57.81 billion.
BP also announced a further USD1.5 billion share buyback programme, the same amount it announced with its second quarter results in August. This was alongside a third quarter dividend rising to 7.27 US cents from 6.00 cents a year earlier.
BP said the purpose of announcing a further USD1.5 billion share buyback was to reduce the shares of the company towards distributing 60% of surplus cash flow generated in 2023 by the company. It will run until February 2.
Lamont said the London-based oil major is now focusing on major upstream oil, gas and liquefied natural gas assets, while slowing investment in renewables.
"Profits and free cashflow remain relatively strong and will underpin planned returns to shareholders, with a higher dividend than last year and a further share buyback. This may well raise eyebrows in the current environment, particularly with oil prices predicted to continue their recent rise amid geopolitical tension," said Lamont.
Edison analyst Neil Shah said the further share buyback showed BP "continues to show a disciplined financial strategy", despite the absence of permanent leadership following Looney's departure.
Looney stepped down in September after failing to fully disclose past personal relationships with colleagues. Murray Auchincloss, who had been finance chief, took on the role of interim CEO following the shock departure of Looney. Thomson, who was senior vice president of finance for the Production & Operations arm, later took on the CFO role on an interim basis.
And while AJ Bell analyst Russ Mould noted that shareholders would arguably be more concerned higher operating cash on-year, "given it is cash which pays the bills and dividends", he still expressed residual caution at the BP leadership.
"The shock departure of CEO Bernard Looney for his lack of transparency on past relationships with colleagues leaves the company lacking some direction at a critical juncture where questions about commitment to its net zero strategy are mounting up," said Mould.
"A big write-down to the value of its US offshore wind portfolio will do nothing to quell the doubters who think it should, much as its US counterparts have done, stick to its knitting of oil and gas and not invest in greener forms of energy with less tried and tested levels of return.
"Whether this is an approach which can be sustained over the long term is open to question. All interim CEO Murray Auchincloss can do is try and keep the ship on course while the wait for a permanent appointment goes on."
Edison's Shah also noted how geopolitical tension could affect BP.
"The group continues to be affected by weak refining margins and fluctuating oil and gas prices following the conflict in the Middle East," said Shah.
Looking ahead, BP said it expects oil prices in the fourth quarter to be supported by Opec+ production restrictions and the continued demand rebound.
"European gas and Asian [liquefied natural gas] prices will be driven by weather, demand recovery in Europe and China and ongoing geopolitical tension. In the US, weather is also a risk factor, but higher than normal storage levels and higher production should help to dampen volatility," the company said, adding it expects industry refining margins to be significantly lower than the third quarter.
It expects fourth quarter Upstream production to be broadly flat from the third quarter.
For 2023, it expects both reported and underlying upstream production to be higher compared with 2022. Within this, it expects underlying production from Oil Production & Operations to be higher and production from Gas & Low Carbon Energy to be slightly lower.
Based on current forecasts, BP said it continues to expect to deliver share buybacks of around USD4.0 billion per year, at the lower end of its USD14 billion to USD18 billion capital expenditure range, and to have capacity for annual dividend increase of around 4%.
By Greg Rosenvinge, Alliance News reporter
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