BP rises on surprisingly upbeat Q2 production and oil trading guidance

BP experienced a 3.3% increase in stock following its announcement of anticipated higher production levels and strong oil trading outcomes for Q2, supported by robust performance in its U.S. onshore operations.

Despite the production increase, BP expects a decline in upstream earnings for Q2, projecting a drop of $600 million to $800 million compared to Q1 due to falling commodity prices and other operational shifts.

The company forecasts improvements in its customers and products division, expecting refining margins to rise significantly, resulting in a projected earnings increase of $300 million to $500 million for Q2.

Analysts anticipate BP's trading update could boost earnings expectations by over 10% due to strong upstream production and trading contributions; however, potential asset writedowns ranging from $500 million to $1.5 billion may offset some of these positive indicators.

Recommendation Rating: Positive Outlook on BP's Q2 Performance

BP (NYSE:BP) saw a 3.3% increase in its stock on Friday following its announcement of anticipated higher production and robust outcomes from its oil trading activities for the second quarter.

In its latest trading update, which precedes the earnings report scheduled for August 5, BP indicated that its upstream production is projected to exceed first-quarter levels, thanks to strong performance from its U.S. onshore operations. Previously, the company had guided expectations for production to remain stable at 2.24 million barrels of oil equivalent per day (boe/day).

Despite the increase in production, BP predicts its upstream earnings for Q2 will be between $600 million and $800 million lower than what was reported in Q1. This downturn is attributed to declining commodity prices, shifts in production mix, and delays in pricing for output from the U.S. Gulf and the United Arab Emirates. Furthermore, earnings from the gas and low-carbon sectors are expected to drop by $100 million to $300 million compared to the previous quarter due to lower commodity prices that include adjustments in non-Henry Hub natural gas markers. The company noted that it anticipates average performance in gas trading, although specifics were not provided.

For Q2, BP reported that the average price of Brent crude was $67.88 per barrel compared to $75.73 per barrel in Q1, while the average U.S. natural gas price decreased from $3.65 per MMBtu to $3.44 per MMBtu.

On a more positive note, BP's customers and products division is likely to experience gains from improved refining margins and seasonally higher volumes, projecting an increase of $300 million to $500 million for Q2, despite facing higher maintenance at its facilities. The company expects average refining margins to rise to $21.10 per barrel from $15.20 per barrel in the prior quarter.

BP also addressed its net debt, which surged by approximately $4 billion in Q1 to nearly $27 billion. The company aims for a slight decline in net debt for Q2 and has set a target of achieving between $14 billion and $18 billion in net debt by the end of 2027.

Analysts from Jefferies, Giacomo Romeo and Kai Ye Loh, predict that BP’s trading update could lead to an increase of over 10% in consensus earnings expectations, bolstered by higher-than-anticipated upstream production and a more significant than expected contribution from trading.

Nonetheless, the positive indicators from BP's trading, refining operations, and upstream activities may be somewhat tempered by potential asset writedowns ranging from $500 million to $1.5 billion across various sectors, the exact areas of which remain unspecified.

In related news, European competitor Shell has indicated that it expects lower Q2 earnings due to decreased trading performance in its integrated gas division and losses within its chemicals and products sectors.