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BP Flags $1 Billion Impairment for Transition Businesses; Oil Trading Results Poised to Grow in Second Quarter

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BP Flags $1 Billion Impairment for Transition Businesses; Oil Trading Results Poised to Grow in Second Quarter

British oil an gas giant BP (BP.L) on Tuesday flagged $1 billion in impairments relating to transition businesses in its gas and low carbon energy segments as it signaled lower debt and positive oil trading results in the second quarter.

"BP is putting through a further $1bn of impairments in its transition businesses, although it is not disclosing which assets this relates to. Call it pre-divestment window dressing...better to take the hit now than show explicit value destruction at the point of sale. We believe both LightsourceBP and Archaea could face the chopping block (although not formally announced by the company as far) and see no place for either in BP's portfolio long term," RBC Capital Markets said in a quick-take note following the trading update.

The group disclosed the impairments amid a bullish outlook for oil trading in the second quarter. For the three months ended June 30, the company expects oil trading results to be "slightly higher" than the first quarter, when it reported an exceptional contribution compared with the prior-year period.

Citing seasonal maintenance primarily in the Gulf of America and the effects of the ongoing disruption in the Middle East, BP expects to report lower upstream production for the second quarter. The guidance range stands at 2.17 billion barrels of oil equivalent per day to 2.22 billion boe/d, compared with 2.34 billion boe/d in the first quarter.

Meanwhile, the group is also expecting a positive impact of between $1.8 billion and $2.1 billion from realizations in its oil production and operations segment, including price lags on production in the Gulf of America and the United Arab Emirates.

The company also expects net debt at the end of the second quarter to be in the range of $22 billion to $23 billion, down from $25.3 billion in the first quarter.

"BP's trading update was better than what we had modeled across most indicators, with strong realisations in the upstream alongside higher refining margin capture than we had modelled. These divisions were supported also by strong oil trading results," RBC added.

BP shares rose more than 2% in early morning trading. The company will release its full second-quarter results on Aug. 4.

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