Oil major BP expects to book $4 billion to $5 billion in fourth-quarter impairments, mainly tied to its "low-carbon" energy businesses. This comes as it redirects spending to oil and gas to boost returns under new leadership including Chair Albert Manifold.
The British company said in a trading statement on Wednesday ahead of results on February 10 that the impairments are excluded from underlying replacement cost profit. A spokesperson declined to say which projects were affected.
BP's "low-carbon" portfolio also includes US biogas producer Archaea which BP bought in 2022 for $4.1 billion. Citi analysts said they suspected impairments might be linked to this unit.
After taking a $24 billion hit from exiting Russia in 2022, BP recorded impairments of $5.7 billion in 2023 and $5.1 billion in 2024. It has flagged around $6.9 billion for last year, according to its releases and Reuters calculations.
The company slashed its annual spending on "energy transition" businesses about a year ago from $7 billion to a maximum of $2 billion. This occurred as it embarked on a major strategy shift back to oil and gas.
It has also had leadership changes with Meg O'Neill set to replace interim CEO Carol Howle in April after Murray Auchincloss's abrupt exit last month. RBC analyst Biraj Borkhataria saw this as a first step in new management "clearing the decks".
He suggested the next logical step would be to cut the buyback to zero and allow for further de-leveraging. BP is currently buying back around $750 million worth of shares every quarter.
It wants to sell its stake in solar power group Lightsource bp and has spun off its offshore wind business into joint venture JERA Nex BP. It has also abandoned plans to build a biofuels plant in Amsterdam and hydrogen plants in Australia and Britain.
Jera Nex BP was not among winners at a British offshore wind power contract auction on Wednesday. This followed having committed hundreds of millions of dollars in 2021 with German regional utility EnBW to UK seabed rights.
BP warned in its outlook on Wednesday that weaker oil trading and falling prices will weigh on fourth-quarter earnings. It expects lower oil prices to reduce quarterly earnings by $200 million to $400 million.
Weaker gas prices could trim another $100 million to $300 million. European benchmark gas prices fell nine per cent in the period, and Brent crude averaged $63.73 a barrel, down from $69.13 in the third quarter.
BP expects net debt to have dropped to $22 billion–$23 billion by the end of 2025 from $26.1 billion in the third quarter. This was helped by divestments of about $5.3 billion, which was above earlier guidance.
The figure excludes $6 billion from selling a majority stake in its Castrol lubricants unit. BP aims to cut debt to $14 billion–$18 billion by 2027.
Refining margins slipped to $15.20 a barrel from $15.80 in the previous quarter. BP’s 440,000-barrel-per-day Whiting refinery in the US suffered outages after an October fire.
This added to earlier disruptions from flooding and a major 2024 outage.
(Reporting by Shadia Nasralla and Stephanie Kelly; Editing by Jan Harvey and Emelia Sithole-Matarise)