Market commentary

Gushing profits have given BP the power to wrestle its balance sheet under control, and the oil major has seized that opportunity with both hands. 

Underlying profits leapt by 48% quarter-on-quarter and almost 300% year-on-year to $8.5bn, as soaring refining margins and stronger gas trading sent earnings through the roof.

Refining and trading delivered $5.7bn to underlying profit before interest and tax, up 80% from Q2. Cash money is pouring in too, with operating cash flow climbing to $14.8bn and allowing BP to wipe $8.4bn off net debt within the period. 

BP hasn’t even needed to fund this reduction with asset sales, and it's worth noting that an estimated $6bn in sale proceeds from Castrol are still to be recognised.

It wasn’t all good news though, as $4.0bn in impairments, largely tied to energy transition projects, rained on the parade.

Shareholders might have hoped outsized profits and cashflows would mean bumper dividends and buybacks. Instead BP has decided pick up the tab for the past. Net debt reduction targets have now been reached, and the company announced its intention to use further excess cashflow to fulfill settlement commitments related to the Deepwater Horizon tragedy 2010. 

Beyond this, the business is in a state of flux, planning to back out of its historic North Sea home, exit US biogas assets and otherwise streamline. A report this week from Semafor even suggested some board members want the business broken up, though BP was quick to rubbish this. 

Whatever the case, the cash pouring into the business will give CEO Meg O'Neill bandwidth to help shape transformation plans. But the current state of elevated oil prices can’t last forever, or so beleaguered consumers hope. So the key question is, what’s coming down the pipeline for BP?

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