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BP shares tumbled 4.3% after the company issued a warning about potential impairments of up to $2 billion, coupled with reports of weak refining margins. This development has raised concerns among investors about the company's near-term profitability and overall financial health.
BP Shares Drop 4.3% Following Impairment Warning and Weak Refining Margins
BP shares fell 4.3% on Tuesday after the company announced it expects to post an impairment of up to $2 billion in the second quarter and warned of lower refining margins affecting its results.
In a statement released on Tuesday, BP said it anticipates weak refining margins and oil trading performance will negatively impact its second-quarter results, scheduled for release on July 30. The estimated financial hit ranges between $500 million and $700 million.
The company also expects to record post-tax asset impairments and contract provisions between $1 billion and $2 billion in the second quarter. This includes charges related to BP’s ongoing review of its Gelsenkirchen refinery in Germany.
BP noted that upstream production for the second quarter is expected to be "broadly flat" compared to the previous quarter. Additionally, the company forecasts an average result in gas marketing and trading.
RBC analyst Biraj Borkhataria commented that the overall energy sector has "modestly" under-performed, but noted some positive aspects, such as stronger than anticipated upstream volumes offsetting weaknesses elsewhere.
BP is undergoing a period of transition following the resignation of former CEO Bernard Looney, who stepped down due to undisclosed personal relationships with colleagues before becoming chief executive. Murray Auchincloss was appointed as permanent CEO in January.
The company is targeting at least $2 billion in cash cost savings by the end of 2026. BP’s results in the first quarter were impacted by weaker margins in fuels and lower gas and oil prices, leading to a drop in profit.
Last week, rival energy giant Shell similarly announced an expected post-tax impairment hit of up to $2 billion, mainly linked to its plants in Singapore and Rotterdam, Netherlands. Shell added that its second-quarter performance in trading and optimization in the core gas division is expected to be lower than the first quarter of 2024 due to seasonality.
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