ii view: BP flags increase in first-quarter production

First-quarter trading update to 31 March

ii round-up:

Energy giant BP (LSE:BP.) today flagged increased production ahead of its first-quarter results on 7 May and under its relatively new chief executive Murray Auchincloss.

Upstream oil production for the three months to the end of March is expected to be higher than the prior final quarter of 2023, with gas and low carbon energy output also slightly increased. 

Shares in the FTSE 100 company rose 1% in UK trading having come into this latest announcement up by almost a tenth year-to-date. That’s similar to rivals Shell (LSE:SHEL) and TotalEnergies SE (EURONEXT:TTE) and ahead of a near 3% improvement for the FTSE 100 index in 2024. 

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Gas marketing and trading is expected to remain strong, adding to a strong performance for oil trading, which proved weak during the previous fourth quarter. 

Improved refining margins for BP's downstream operations are expected to prove beneficial by up to $0.2 billion compared to the prior quarter, countering a potential negative impact of up to $0.6 billion for its upstream operations given a marginally lower realised average oil price compared to Q4.

BP’s net debt was guided to be higher over the period, partly due to a phasing of capital expenditure which is expected to be around $16 billion during the full year, but weighted to the first half. 

ii view:

Started in 1908, BP today employs over 60,000 people in more than 60 countries. Its operations include over 20,000 forecourt garages and more than 21,000 electric vehicle charging points, along with a pending renewables energy generation pipeline of 58.3 gigawatts. Its gas and low carbon division generated its biggest slug of profits during 2023 at almost a half, followed by oil production and operations at close to two-fifths. Customer and products made up the balance of around a tenth. 

For investors, a tough economic outlook including concerns about growth in China, offer uncertainty over future energy demand and usage. Gas and oil trading is volatile, costs generally for businesses are now elevated, while government windfall taxes following the spike in energy prices and the Ukraine war continue to be collected. Global warming and climate change also remain a big concern.

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More favourably, a diversity of operations exists, ranging from hydrocarbon production to windfarm and solar and battery storage assets, and energy majors have become accustomed to dealing with energy price volatility. Strong cashflow generation has helped lower net debt from its forced highs under the pandemic, while the new CEO is courting investors with the return of 80% of surplus cash via share buybacks compared to 60% previously.

In all, and while energy price volatility is an unavoidable given, the current price is supportive. A forecast dividend yield of over 4.5% combined with a consensus analyst fair value estimate of 600p should also keep fans of this energy major interested.  

Positives: 

• Pursuing an Integrated Energy Company strategy 
• Focus on shareholder returns

Negatives:

• Climate change concerns  
• Uncertain economic outlook

The average rating of stock market analysts:

Buy