Oil major BP (BP.) delivered a better-than-feared drop in profits for the third quarter to September and said it will keep the rate of its share buyback programme unchanged at $1.75 billion (£1.35 billion) over the next three months.

Nevertheless, the energy major’s shares were marked down 1% to 395p with investors unnerved by a net debt uptick from $22.6 billion at the end of June to $24.3 billion, which BP pinned on ‘lower operating cash flow, higher capital expenditures and lower divestment and other proceeds’.

WEAK REFINING MARGINS

Amid a slump in oil prices and declining refining margins, third quarter underlying replacement cost profit tumbled 30% year-on-year to $2.3 billion.

Though the fall proved better than the $2.1 billion consensus estimate, profits still fell to their lowest level since late 2020 - when industry earnings cratered due to Covid – with BP suffering from a slowdown in global economic activity and muted demand for oil from China in particular.

BUYBACKS RATE MAINTAINED

BP maintained its third quarter dividend at 8 cents per share, having raised the payout in the second quarter, and assured investors it will keep the rate of its buybacks programme unchanged at $1.75 billion over the next three months.

But the earnings decline heaps additional pressure on CEO Murray Auchincloss to boost shareholder returns.

He has reportedly scaled back the FTSE 100 giant’s energy transition strategy in order to win back the market’s confidence.

EXPERT VIEWS

Edison’s Neil Shah said that looking ahead, Auchincloss’ ‘value over volume’ approach, which prioritises higher margin fossil fuel projects alongside selective energy transition investments, will be closely watched.

‘Expected expansions in the Middle East and Gulf of Mexico aim to boost cash flow and support shareholder returns,’ explained Shah. ‘BP’s cost saving targets and active share buybacks could bolster investor confidence, though underperformance relative to peers invites scrutiny as sector expectations evolve.’

AJ Bell head of financial analysis Danni Hewson observed that BP’s marginally better-than-expected results will have done little to alleviate the pressure on Auchincloss.

‘Of all the major oil companies BP perhaps went heaviest on the energy transition under Auchincloss’ predecessor Bernard Looney,’ aid Hewson. ‘And while today’s announcement doesn’t explicitly confirm reports the company is abandoning targets to scale back its oil and gas production by 2030, the direction of travel seems pretty clear.’

Hewson continued: ‘The company has fallen behind its US peers who have taken a more pragmatic approach, with no plans to move out of hydrocarbons, no interest in renewables and a focus instead on what they see as complimentary areas like carbon capture and hydrogen. BP has also been left behind by its close UK counterpart Shell (SHEL), which has built a long-term strategy around natural gas - which is seen in some quarters as a bridge between more polluting fossil fuels like coal and oil and renewable energy.’

DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (James Crux) and the editor (Steven Frazer) own shares in AJ Bell.

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