- Up to $2 billion impairment expected
- BP sees earnings hit from lower refining margins
- Hunting upgrades guidance, Wood wins Shell contract
BP (BP.) shares slid 3.6% to 457.6p on Tuesday after the energy producer warned it would book impairments of up to $2 billion in the second quarter of 2024 arising from plans to scale back refining operations in Germany which have been hit by rising energy costs and weakening demand.
In a teaser ahead of second quarter results on 30 July, the oil supermajor said it expects an adverse impact from lower refining margins of between $500 million and $700 million.
The FTSE 100 energy giant also explained that upstream production in the second quarter is expected to be ‘broadly flat’ versus the first quarter, and ‘slightly lower’ in gas and low carbon energy.
BIG HIT FOR BP
London-based BP expects to book impairments of $1 billion to $2 billion in the second quarter, which includes charges related to the previously-announced review of its Gelsenkirchen refinery in Germany.
‘The major issue is a big hit to refining margins, reflecting both market dynamics but also operational issues for the company,’ said AJ Bell investment director Russ Mould.
‘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.’
Mould added: ‘There are suggestions CEO Murray Auchincloss, who recently saw his stint as caretaker boss made permanent, will look to take costs out of the business and moderate net zero ambitions in order to prioritise boosting returns to help close the valuation gap on US rivals.
‘However, alongside any major strategic shifts, BP needs to demonstrate competence in the day-to-day running of the business and today’s update doesn’t help in that sense.’
BP’s disappointing news comes hot on the heels of an updated second quarter outlook from arch-rival Shell (SHEL), which contained few changes to production forecasts but signalled its renewables unit would make a considerable loss.
HUNTING HIGH NOT LOW
Elsewhere within the energy sector, shares in Hunting (HTG) rose 2.5% to 439.5p after the FTSE 250 firm announced a forecast-beating performance for the first half of 2024 and provided a positive outlook for the balance of 2024 and 2025 given the strength of international and offshore markets.
One of Shares’ key selections for 2024, the energy services firm said EBITDA (earnings before interest, tax, depreciation and amortisation) for the half is likely to be in the $59 million to $61 million range, ahead of management’s expectations and more than 20% ahead of the first half of 2023.
Hunting reported a bulging order book worth $700 million as of 30 June 2024, up from $565 million at 31 December 2023 and beefed up by some $231 million of orders from KOC (Kuwait Oil Company).
With first half trading ahead of management’s expectations and management drawing confidence from cost reduction initiatives, Hunting upgraded its full year 2024 EBITDA guidance to between $134 million to $138 million.
CEO Jim Johnson said: ‘At circa $700 million, our sales order book nears the highest in the company’s history, which supports strong revenue and earnings visibility well into 2025.’
Also in demand was fellow FTSE 250 company Wood Group (WG.), which edged 0.3% higher to 195.5p on news the consulting and engineering group has won a six-year contract to provide brownfield engineering, procurement, and construction management solutions for Shell’s Prelude Floating Liquified Natural Gas (FLNG) facility in Western Australia.
DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (James Crux) and the editor (Martin Gamble) own shares in AJ Bell.
