BP shares slide four per cent after warning of £1.6bn impairment
Shares in BP fell by as much as four per cent on Tuesday after it warned it expected to take a hit of up to $3bn (£2.3bn) in its April to June results after falling demand for petrol led its refining business to struggle.
The FTSE 100 oil major, which in April surprised investors with a better-than-expected oil and gas trading performance in the first three months of the year, maintained that momentum in its oil production and operations, but warned investors that “significantly” lower refining margins were likely to dent quarterly earnings to the tune of $500m-700m (£391m-£547m).
It also said that it also expects to swallow a $2bn (£1.6bn) loss due to its plan to scale back its refining operation in western Germany by a third, again due to weaker demand.
BP shares were down over 3.5 per cent at market close.
In a trading update published this morning, the company said upstream production was flat compared to the prior quarter, and realised oil prices had a favourable impact on its bottom line.
Analysts at Jeffries said the trading update should result in a downgrade in earnings of approximately 20 per cent, “mainly driven by a lower trading contribution” and the negative revisions in refining.
BP also said its second-quarter results expected on July 30 will include the post-tax adverse adjustments from the firm’s ongoing review of its Gelsenkirchen refinery in Germany.
Russ Mould, investment director at AJ Bell, said: “A teaser ahead of second-quarter results later this month from BP suggests they won’t be a winner.
“The major issue is a big hit to refining margins, reflecting both market dynamics but also operational issues for the company. These factors also underpin guided impairments of $1 billion to $2 billion for the quarter. The broad range left the market with some uncertainty over how the second-quarter numbers will land.”
Darren Nathan, Hargreaves Lansdowne, head of equity research, was more sanguine, saying: “BP’s second-quarter update revealed that upstream production is now likely to be broadly flat compared to the first quarter, an improvement over the slight fall expected in previous guidance…
There shouldn’t be too much change, if any, to underlying analyst expectations off the back of this statement. BP’s focus has been a little scattergun of late, but it’s likely to remain an important part of the energy mix for some time to come.”