BP’s Stock Decline: Q3 Profit Falls Short Due to Gas Sector Woes
Introduction
In a recent turn of events, BP (LON: BP) found itself in a rather challenging spot as its third-quarter earnings of $3.3 billion fell short of analysts’ expectations. This unexpected dip in profit was primarily attributed to a lackluster performance in the gas sector, resulting in a significant blow to the company’s financial standing. In this article, we will dive deeper into the details of BP’s Q3 performance, the factors that led to this decline, and the company’s strategic moves to counteract this setback.
A Disappointing Quarter
BP’s third-quarter earnings report took many by surprise, showing a 5.4% decline in the company’s stock value by 0910 GMT, in contrast to a 1.25% drop in a broader index of European energy companies. The main culprits behind this downturn were weak results in the gas sector and a substantial write-down of a U.S. offshore wind project.
Gas Sector Troubles
The gas sector, a historically stable source of revenue, delivered disappointing results this quarter. BP had to take a significant hit by incurring a $540 million write-down for its wind power projects offshore New York. This write-down came as a response to officials’ rejection of a request for improved terms to account for “inflationary pressures and permitting delays.” Equinor, BP’s partner in these projects, also reported a $300 million impairment. BP’s Interim CEO, Murray Auchincloss, acknowledged the challenge and stated, “New York put out a 10-point plan, which would help move these projects forward… We’ll be looking at that with our partner Equinor and deciding what we do moving forward.”
In 2020, BP entered into a partnership with Equinor, acquiring a 50% stake in the venture to develop the Empire and Beacon offshore wind projects. These projects have a combined capacity of 3.3 gigawatts, capable of powering 2 million homes. However, the hurdles faced in New York have cast a shadow over the future of these ventures.
Across-the-Board Earnings Miss
Analyst Biraj Borkhataria from RBC observed, “Earnings missed across all divisions.” Even in the downstream sector, where BP benefited from strong oil trading results, earnings fell short of consensus. Customers & products reported $2.1 billion against a consensus estimate of $2.4 billion, indicating weaker refining margin capture in the third quarter. This widespread underperformance sent shockwaves through the market, leaving many investors concerned about BP’s stability.
Industry-Wide Woes
BP’s troubles in the third quarter were not isolated. Rivals like Chevron (NYSE: CVX) and Exxon Mobil (NYSE: XOM) also reported significant year-on-year drops in third-quarter profit. This decline in profits was primarily due to cooling energy prices. Shell’s upcoming results on Thursday will provide further insight into the state of the energy industry.
BP’s Commitment to Strategy
Despite the disappointing earnings report, BP remains committed to its long-term strategy. Auchincloss emphasized that the company continues to focus on low-carbon and renewable energy. This commitment comes on the heels of former CEO Bernard Looney’s resignation on September 12, following issues related to the disclosure of past personal relationships with colleagues.
Conclusion
BP’s third-quarter earnings report certainly sent shockwaves through the industry, primarily due to a weaker performance in the gas sector. Despite this setback, BP stands firm in its commitment to a greener and more sustainable future. The energy giant, along with its partners, must navigate the challenges in the gas sector and work toward their renewable energy goals.