BP says high production and strong trading will offset oil and gas price slump

By Louis Goss

BP on Tuesday said it expects high levels of upstream production and a strong performance from its trading business will help it offset the negative impacts of lower oil and gas prices and a drop in the value of Egypt's currency that could hit its profits by $1.2 billion in the first quarter of 2024.

The British oil major said it expects to take a $0.2-0.4 billion hit from lower natural gas prices, a $0.3-0.6 billion hit from lower oil prices, and a $0.2 billion hit from the drop in the value of Egypt's pound, compared to the final quarter of 2023.

In a trading update, BP, however, said a strong performance from its oil and gas trading businesses, higher upstream production, and good refining margins will boost its first quarter results and help offset the negative impacts of lower prices.

Shares in BP (UK:BP) increased 2% on Tuesday having gained 11% in the year-to-date. BP is scheduled to publish its first quarter results on May 7.

The company said strong refining margins are expected to boost its bottom line by $0.1-0.2 billion, as it said it also expects its upstream oil and gas production will be higher in the first quarter of 2024 compared to the final quarter of 2023.

In the fourth quarter of 2023, BP generated underlying replacement cost profits of $2.99 billion. BP's upcoming first quarter results are set to be the FTSE-100 oil giant's first set of financial statements under new CEO Murray Auchinloss, following Bernard Looney's exit in September 2023.

Higher volumes will help BP offset a drop in oil and gas prices that saw Brent crude prices drop 1.4% to $83.16 per barrel, and natural gas prices on the U.S. Henry Hub exchange fall by 21.9% to $2.25 per MMBtu in the first quarter of 2024, the company said.

BP added that it had experienced a "significantly lower level of turnaround activity" in the first quarter of 2024, compared to in the fourth quarter of 2023, even following the six-week outage at its Whiting refinery in Indiana.

Natural gas prices on Texas' Henry Hub have fallen sharply over the previous year, to their lowest rates in decades, following an unusually warm winter and a surge in production following the sharp increase in prices in the wake of Russia's invasion of Ukraine in 2022.

Brent crude prices fell sharply throughout the final quarter of 2023, before being pushed up again throughout the first quarter of 2024 by concerns about mounting geopolitical tensions and disruption in the Red Sea.

Analysts said the recent surge in Brent crude prices to heights of more than $90 a barrel had helped lift BP's share price on Tuesday, alongside the positive trading update.

AJ Bell's investment director Russ Mould said the "guidance implies BP is hoping to quietly get on and do the job, achieving small incremental gains which should be enough to keep the market happy."

The oil major said it expects it net debt to increase in the first quarter "mainly reflecting a working capital build plus phasing of capex and divestment and other proceeds as previously guided."

-Louis Goss

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04-09-24 0512ET

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