BP Earnings: Earnings Fall on Lower Commodity Prices; Management Turns Over, but Strategy Remains

BP’s BP. third-quarter earnings fell from the year before, while failing to meet market expectations, primarily due to lower oil and gas prices and weak gas and marketing trading results. Underlying replacement cost profit fell to $3.3 billion from $8.2 billion a year ago while operating cash flow increased to $8.7 billion from $8.3 billion the year before, due to working capital effects. Production increased 1.3% to 2,328 barrels of oil equivalent per day from the year before. BP repurchased $2.0 billion in shares during the quarter, including its $1.5 billion program announced last quarter as well as additional repurchases to offset dilution. Management will maintain the $1.5 billion repurchase rate in the fourth quarter. Gearing fell to 20% during the quarter but remains at the upper end of the peer group range.

Despite recent management turnover, BP remains committed to its transition strategy. It reiterated its commitment earlier this month at an investor update where it also increased its 2030 EBITDA targets for its hydrocarbons business and entire company by about 5% and 4%, respectively. Regarding hydrocarbons, it plans to grow production through 2025 and hold that level constant through 2030, excluding divestments, which should lead to EBITDA growth through 2025, as well.

Yet it still expects to commit about 40% of investment to its transition businesses—low carbon energy and convenience and mobility—by 2025, leaving its transition in place. Those businesses are projected to deliver over 20% of EBITDA by 2030. This level of nonhydrocarbon investment ranks as one of the highest among its peer group, and concerns over returns on this investment have likely weighed on BP’s valuation.