BP PLC (LSE:BP.) expects stronger oil and gas prices to help offset lower production during the second quarter, while also projecting a significant reduction in net debt despite recording around $1 billion in impairment charges.
In a trading update released ahead of its second-quarter results due early next month, the FTSE 100 energy company said net debt is expected to decrease by at least $2.3 billion from the $25.3 billion reported at the end of the first quarter. The reduction follows the repayment of €2.5 billion in hybrid bonds and a $1.1 billion payment relating to Gulf of America settlement obligations.
The company expects improved commodity prices to provide a substantial boost to upstream earnings. Oil production and operations realisations are forecast to contribute between $1.8 billion and $2.1 billion compared with the previous quarter, while gas and low carbon energy realisations are expected to add a further $0.5 billion to $0.7 billion.
BP’s customers and products division is also anticipated to deliver stronger performance, supported by seasonal increases in fuel demand, firmer fuel margins and improved refining margins. Together, these factors are expected to contribute between $1.2 billion and $1.4 billion.
These gains are likely to be partially offset by lower production levels. Oil production and operations are expected to average between 1,420 and 1,450 thousand barrels of oil equivalent per day during the quarter, down from 1,541 thousand barrels in the first quarter. Refinery throughput is also forecast to decline due to scheduled maintenance and reduced activity at the Whiting refinery following a third-party incident in April.
The company also expects exploration write-offs of approximately $0.5 billion, primarily related to the disposal of the Bay du Nord project in Canada. In addition, second-quarter results are expected to include post-tax impairment charges of around $1 billion, mainly associated with transition businesses within BP’s gas and low carbon energy segment.
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