BP slides on Q3 profits miss

With sector peer Shell’s share price hitting record high over the last quarter, BP’s share price has struggled to keep up although it did manage to get close to its February highs of earlier this year in the middle of this month.

Like Shell, BP also has a new CEO although not for the same reasons as Shell. Previous incumbent Bernard Looney was forced to step down after failing to disclose details of past relationships with colleagues.

A few weeks after Looney stepped down the boss of BP’s US operation Dave Lawler also resigned, which while it has created a sense of uncertainty at the top of the business shouldn’t have that much of an impact on the company’s day to day operations in the short term.

Nonetheless this uncertainty at the top of the UK’s second biggest oil company may help to explain why BP’s share price has underperformed relative to Shell in the last 3 months, however it doesn’t explain why it has underperformed year to date.

That’s down to management and it rather begs the question as to whether any new CEO will persevere with the “Performing while Transforming” of Bernard Looney, because while it is clear that BP is transforming, it certainly isn’t performing, with the shares sharply lower, after missing on Q3 profits in its numbers released today.

When BP reported in Q2 the numbers were clearly expected to come in short of expectations, and while the bar was low, they still somehow failed to clear it.

Today’s Q3 numbers appear to have followed the same playbook with underlying replacement cost profit coming in at $3.3bn, falling well short of expectations of $4.05bn.

The underperformance appears to have come from its gas and low carbon energy division where profits were lower compared to Q2 at $1.25bn, while oil production and operations saw an increase from Q2, coming in at $3.13bn, although both numbers were sharply lower from the levels last year due to lower oil and gas prices.

One of the reasons for the sizeable drop in profits in the gas and low carbon energy division is the decision to take a $540m charge in respect of its joint share with Equinor in a US offshore wind farm off the coast of New York.

In a carbon copy of Q2 BP have taken the decision to try and sweeten today’s disappointment by announcing another $1.5bn buyback, while announcing a dividend of 7.27c a share.  

Despite the disappointment the headline numbers are an improvement on Q2 and appear to be in line with the misses last week from its US peers Chevron and Exxon, however these two US oil majors are magnitudes of size bigger so the bar for them is higher.

Reported oil production levels are also higher from the same quarter a year ago, up by 5%

On the plus side BP has managed to cut the level of its debt by $1.3bn to $22.3bn, however this only partially reverses the decision to increase it in Q2 by $2bn to fund an increase in the dividend and announce another buyback.  

For Q4 BP said it expects upstream production to be broadly flat compared to Q3, while also saying it expects to see lower volumes as well as pressure on refining margins.