BP Foresees Lower 4Q Production but Higher Commodity Prices

In the last three months of 2022, London-based BP foresees slightly lower production but elevated oil and gas prices due to uncertainties related to Russian oil and gas exports.

BP’s combined oil and gas production was 2.3 MMboe/d in the third quarter of 2022 with an average realization of $73.76/boe, the company announced Nov. 1 in a press release. Combined upstream production in the fourth quarter of 2022 on a reported basis will be slightly lower compared to the previous quarter primarily in BP’s gas regions.

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“On the production front, total global production was above our estimate by 5%, while total price realizations exceeded our estimate by 16%,” Wells Fargo equity analysts Roger D. Read and Lauren Hendrix Walker revealed Nov. 1 in a research report to clients.

Looking forward to 2022, BP expects reported upstream production to be slightly higher compared to 2021 despite the absence of production from its Russia incorporated joint ventures.

BP said it expects oil and gas prices to remain elevated in the last three months of the year due “to the recent OPEC+ supply cut reducing supply amid ongoing uncertainty associated with Russian oil exports” and “a lack of supply to Europe with the outlook heavily dependent on Russian pipeline flows or other supply disruptions,” respectively.

On the refining front, the company also expects margins in the fourth quarter of 2022 to stay robust due “to sanctioning of Russian crude and products.”

Financially, BP reported a $2.2 billion loss in the third quarter of 2022 compared to a $9.3 billion profit in the previous quarter. Third quarter results were impacted by “inventory holding losses net of tax of $2.2 billion and a charge for adjusting items net of tax of $8.1 billion,” the company said.

“This quarter’s results reflect us continuing to perform while transforming. We remain focused on helping to solve the energy trilemma – secure, affordable and lower carbon energy,” BP CEO Bernard Looney Chief said in the release. “We are providing the oil and gas the world needs today, while at the same time investing to accelerate the energy transition. Our agreement on Archaea Energy is the most recent step in our strategic transformation of BP.”

“This quarter’s results reflect us continuing to perform while transforming. We remain focused on helping to solve the energy trilemma – secure, affordable and lower carbon energy." – Bernard Looney, BP Plc

The Wells Fargo analysts said BP’s third quarter results were generally positive, beating their estimates for EBIT and net income, which were mainly “impacted by weaker refining margins, average oil trading result and lower liquids realizations, partly offset by an exceptional gas marketing and trading result and higher gas realizations.”

Share buybacks continue

London-based BP reported net debt fell to $22 billion at the end of the third quarter, the 10th successive quarter in which it has declined, the company said in the release. BP expects its capital expenditures to come in around $15.5 billion in 2022 if the acquisition of Archaea Energy concludes by year-end.

In terms of share buybacks, the company completed $2.9 billion in the third quarter and expects buybacks to total $2.5 billion in the fourth quarter. Total estimated share buybacks are on track to reach $8.5 billion in 2022, representing 60% of the company’s surplus cash flow year to date.

BP remains keen on utilizing 60% of surplus cash flow for share buybacks and plans to dedicate the 40% remaining to further strengthen its balance sheet in line with maintaining a strong investment grade credit rating, the company said.

Assuming a scenario with an average Brent price of around $60/bbl, BP looks to deliver share buybacks of around $4 billion per year with capacity to boost its dividend per ordinary share of around 4% through 2025.

Transformation confusion

London-based BP continues to move forward its company transformation to an integrated energy company. However, investors still remain hesitant on the transformation.

“Based on our conversations with both traditional energy investors and non-traditional energy investors, we find that BP does not have a well-defined ‘place’ in the market,” Wells Fargo’s analysts Read and Walker said.

“Simply stated, investors are not sure whether to value BP as a traditional IOC, an unregulated utility or something else. In our view, this uncertainty hampers its valuation and share price performance potential,” the analyst added.

This comes as BP reported recent progress on a number of fronts, including plans to buy U.S. biogas company Archaea Energy and the creation of Azule Energy, a 50:50 joint venture combining its Angolan assets with those of Italy oil giant Eni. Additionally, it has plans to collaborate with Hertz in North America to install a national network of electric vehicle charging solutions for Hertz and its customers, powered by BP Pulse.

Lastly, the company plans to move forward two BP-led projects – H2Teesside and Net Zero Teesside Power – which have been shortlisted in Phase 2 of the U.K. government's cluster sequencing process for support of carbon capture, utilization and storage.