BP reported third-quarter underlying replacement cost profit of $8.46 billion on Friday, significantly exceeding analysts’ expectations of $7.33 billion and more than tripling the $2.2 billion recorded in the same period last year.
The result represents a substantial improvement for the British energy group, which uses underlying replacement cost profit as its principal measure of underlying earnings. The figure adjusts for changes in the value of inventories and excludes certain exceptional items, meaning it should not be confused with the company’s reported net income.
A stronger performance in refining was among the factors identified in BP’s trading update ahead of the results. The company had expected realised refining margins to contribute an additional $1.9 billion to $2.1 billion compared with the previous quarter. Its refining indicator margin averaged $46.70 per barrel in the third quarter, up from $29.60 in the second quarter.
BP had also anticipated a significantly stronger result from gas marketing and trading compared with the previous quarter. However, lower oil price realisations were expected to weigh on its oil production and operations business. Brent crude averaged $96.99 per barrel during the quarter, compared with $103.85 in the second quarter.
The company’s trading update had indicated that performance would vary across its business divisions. Its gas and low-carbon energy operations were expected to benefit from improved gas trading, while the oil production and operations division faced lower realised prices. In its customers business, BP anticipated weaker fuel margins and higher base oil prices affecting Castrol earnings, partly offset by slightly higher sales volumes.
The company also expected stronger refining performance despite lower refinery throughput, reflecting the completion of the sale of its Gelsenkirchen refinery in Germany on July 31 and reduced planned maintenance activity.
Despite the strong underlying profit, BP’s third-quarter results are expected to include substantial impairment charges. Its earlier trading statement estimated post-tax impairments of between $3 billion and $4.5 billion, primarily involving businesses in its gas and low-carbon energy division. These charges are excluded from underlying replacement cost profit and could therefore affect reported earnings without reducing the underlying profit figure announced on Friday.
BP also indicated that its net debt was expected to fall sharply to between $13.5 billion and $14.5 billion at the end of September, compared with $22.3 billion at the end of the second quarter. The anticipated reduction reflected several factors, including a working capital release, the redemption of $1 billion in hybrid securities and other movements in the company’s financial position.
The third-quarter performance comes as BP continues to manage its portfolio of oil, gas, refining and lower-carbon energy businesses. The results highlight the importance of refining margins and trading performance to its earnings, while the expected impairment charges indicate continuing financial adjustments within parts of its energy transition portfolio.
The $8.46 billion underlying profit was substantially stronger than both the previous year’s result and analysts’ expectations, although the scale of the anticipated impairment charges remains an important factor in assessing BP’s overall financial performance.
