ii view: BP warns on Q4 production and delays investor day

Fourth-quarter trading update to 31 December

ii round-up:

Oil giant BP (LSE:BP.) today flagged expected lower production as well as a delay in its scheduled strategy update.

Fourth-quarter production to the end of December is expected to be below that achieved in the third quarter across the three areas of oil, gas and low carbon energy. A capital markets day, previously due on 11 February, will now be held on 26 February given chief executive Murray Auchincloss' continued recuperation from a planned medical procedure.

Shares in the FTSE 100 company fell 2% in UK trading having come into this latest news down 5% over the last year, but up 10% in the past month. That’s similar to French rival TotalEnergies SE (EURONEXT:TTE) but below an 8% 12-month gain for Shell (LSE:SHEL). The FTSE 100 index itself is up 8% over the last year. 

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BP operates in more than 60 countries. Foreign exchange losses are now expected to result in an annual 2024 charge of $0.6 billion compared to a previous estimate of up to $0.4 billion. 

The group’s underlying effective tax rate for 2024 is now forecast by management to be around 42% compared to a prior 40% estimate, largely due to changes in the geographical mix of profits. 

BP’s net debt as at late December is expected to have reduced from late September’s $24.2 billion, aided by divestments of around $2.8 billion. 

Fourth-quarter and annual results are still expected to be announced on 11 February.  

ii view:

Started in 1908, BP today employs over 85,000 people. It operates across the three core areas of Production and Operations, Gas and low carbon energy and customers and products. Low carbon operations include on and offshore wind farms and solar energy, while the customers division manages around 37,500 electric vehicle (EV) charging points globally with ambition to increase that to 100,000 by 2030.  

For investors, a pending strategy update is expected to include a review and possible lowering of share buybacks over full-year 2025. An uncertain economic outlook includes worries about growth in China, providing unknowns regarding future energy demand and usage. Gulf of Mexico accident and spillage settlement payments continue, while windfall taxes introduced in response to higher energy prices and the war in Ukraine persist. 

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More favourably, a diversity of operations ranging from hydrocarbon production to windfarms regularly sees challenges for one area countered by positives for another. Recently extended US oil sanctions against Russia have offered support to the oil price. A share buyback programme of around $1.75 billion was previously flagged for the fourth quarter just ended, while BP is targeting at least $2 billion of cash cost savings by the end of 2026 versus 2023. 

In all, and despite continued risks, a forecast dividend yield of close to 6% and a consensus analyst fair value estimate above 495p per share, appear to provide reasons for longer-term optimism. 

Positives: 

• Diversity of operations
• Pursuing at least $2 billion of cost savings 

Negatives:

• Climate change concerns  
• Uncertain economic outlook

The average rating of stock market analysts:

Buy