BP PLC on Tuesday said it expects to take an impairment charge of up to $2 billion in the second quarter, partly because of the review of refining activities in Germany that it announced in March.

The London-based energy company also flagged that lower refining margins will hit earnings by $500 million to $700 million.

Shares in BP opened 2.5% lower at 462.87 pence each in London on Tuesday morning. The wider FTSE 100 index was up 0.2%.

In a trading update, BP said it expects second-quarter results to be hit by ‘post tax asset impairments and one-off contract provisions of between $1 billion and $2 billion’, which includes the impact of the scaling back of refining operations at the Gelsenkirchen refinery from 2025, due to high costs and declining demand for fuels.

In the customers segment, compared to the prior quarter, BP forecast stronger fuels margins and convenience store performance, and seasonally higher volumes.

But in the products unit, significantly lower realized refining margins, are expected to have an adverse impact in the range of $0.5 billion to $0.7 billion.

This mainly reflects weaker middle distillate margins and narrower North American heavy crude oil differentials, and a higher level of turnaround activity.

This will be partially offset by the absence of the first-quarter Whiting refinery outage of around $0.5 billion, BP noted.

The oil trading result is expected to be weak following a strong result in the first quarter, the company added.

In the oil production & operations segment, realizations, compared to the prior quarter, are expected to have a favourable impact in the range of $100 million to $300 million, including the impact of price lags on BP’s production in the Gulf of Mexico and the United Arab Emirates.

In the gas & low carbon energy segment, realizations, compared to the prior quarter, are expected to have a negative impact of around $100 million, including declines in non-Henry Hub natural gas marker prices.

The gas marketing and trading result is expected to be average following a strong result in the first quarter.

Upstream production in the second quarter is now expected to be broadly flat compared to the prior quarter, with production broadly flat in oil production & operations and slightly lower in gas & low carbon energy.

BP’s full second-quarter results are expected to be published on July 30.

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