ii view: BP expects drop in Q1 gas output and weak trading

First-quarter trading update to 31 March

ii round-up:

Energy giant BP (LSE:BP.) today reaffirmed an expected drop in production for the first quarter of 2025 compared to the last quarter of 2024, given the recent sale of assets in Egypt and Trinidad. 

Reduced production of gas and low carbon energies is expected to more than offset slightly higher oil production, with sale prices achieved for both oil and gas expected to be similar to the previous quarter. Results from gas marketing and trading are "expected to be weak".

Shares in the FTSE 100 company fell 2% in UK trading having come into this latest news down 13% year-to-date. That’s about double the fall in shares in rival Shell (LSE:SHEL). The FTSE 100 index itself is down almost 5% in 2025. 

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BP operates in more than 60 countries. In a recent strategy update, BP laid out plans to cut borrowings to between $14 billion and $18 billion by the end of 2027 as it pursues a mix of business disposals, cost savings and reduced investment expenditure.

BP’s net debt at the end of the first quarter is expected to be around $4 billion higher compared to the fourth quarter’s $23 billion. That’s driven by seasonal inventory effects and the timing of payments, which are largely expected to reverse. 

The group’s customer and products, or downstream operations are expected to be impacted by a mix of seasonally lower volumes but stronger realised refining margins.  

First-quarter results are scheduled for 29 April. 

ii view:

BP appointed chief executive Murray Auchincloss in early 2024. The London headquartered company operates across the three core divisions of Production and Operations, Gas and Low Carbon Energy and Customers and Products. Geographically, the US generated its biggest single country contribution of revenues in 2024 at 31%, with the UK at 13%, and other countries combined the balance of 55%. 

For investors, lower shareholder returns via share buybacks are expected over at least 2025 as the company makes adjustments as part of its new strategy. Concerns about energy demand have risen given a potential trade war and possible subsequent recession. Gulf of Mexico accident and spillage settlement payments continue, while concerns about the contribution of fossil fuels towards climate change should not be forgotten.  

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To the upside, a diversity of operations ranging from hydrocarbon production to windfarms regularly sees challenges for one area countered by positives for another. Cost savings of $4-5 billion are being pursued by 2027. An eventual rejig of the company sees management expecting to boost shareholder returns come 2027, while a focus on the dividend near term has left management promising to increase the payout by at least 4% a year.

In all, a forecast dividend yield of over 7% is likely to see investors remain supportive. That said, amid concerns about BP’s ability to grow profits while reducing operations under planned business disposals, City opinion has drifted toward a ‘strong hold’ from a previous ‘buy’ rating.  

Positives: 

• Diversity of operations
• Pursuing increased cost saving targets 

Negatives:

• Climate change concerns  
• Uncertain economic outlook

The average rating of stock market analysts:

Strong hold