BP shares fell by 6% on Friday after the British energy company announced that weak refining margins, lower sales of gasoline and other oil products, as well as higher exploration write-offs will weigh on profits for the quarter through September.
In the third quarter, BP's net profit decreased by 2% to 12.9 billion US dollars, while Wells Fargo reported an 11% decline to 5.1 billion US dollars. Despite this decline, both banks exceeded analysts' expectations, indicating unexpectedly robust consumer resilience. However, for BP, this posed a challenge as refining margins fell to an average of 16.5 dollars per barrel, compared to 20.6 dollars in the previous quarter. This decrease in margins led to an expected profit decline of 400 to 600 million US dollars.
The weak margins are a direct result of increased operating costs and decreased demand for our products," said Murray Auchincloss, CEO of BP, in a press release. Additionally, lower fuel sales will have a further negative impact on profits, with expected losses of up to $300 million.
Another factor is the higher write-offs in exploration, which impacts BP by up to 300 million USD. This development results from the ongoing uncertainties in the oil and gas sector as well as the increased costs for exploration and production. At the same time, the company's net debt ratio will be higher as part of the proceeds from sales will only be received in the fourth quarter.
Since his appointment as CEO in January, Auchincloss has sought to regain investors' trust by focusing more on BP's core activities in the oil and gas sector. Recent measures include approving the development of the new Kaskida field in the Gulf of Mexico and the sale of BP's U.S. onshore wind farms.
Despite positive measures, BP's stock lags behind its competitors and has fallen by more than 12% so far this year. The company had already warned of weak refining margins in the last quarter, and analysts from Jefferies have revised their earnings forecasts down by about 20%. Additionally, a reduction in operational activities at the Gelsenkirchen Refinery by one-third from 2025 has been announced, which could further impact the operating result.
Giacomo Romeo, an analyst at Jefferies, now predicts that BP's consensus earnings will be around 10% lower than the previously expected $2.3 billion. "The current challenges with refining margins and higher write-downs are putting significant pressure on BP," said Romeo.
Analysts also fear that BP may not be able to maintain its shareholder returns if oil prices, currently supported by the conflict in the Middle East, fall next year as producers increase supply. Kim Fustier from HSBC warned that an average Brent oil price of $76.5 per barrel would not support BP's planned annual share buybacks of $7 billion from 2025.
