(Bloomberg) — BP Plc’s posted earnings that far exceeded analyst expectations in the first quarter, as energy market turmoil caused by the Iran war led to a surge in profits from its oil trading operation.
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Adjusted net income more than doubled from a year earlier to $3.2 billion, helped by a boost in profits from trading and refining, according to an earnings statement Tuesday. However, net debt increased during the quarter, while analysts pointed to weak cash flow generation as a concern.
The jump in profit — the first presented by new Chief Executive Officer Meg O’Neill — hands her a tailwind as she confronts the need to repair the balance sheet, streamline BP’s structure and shed low-returning assets.
Disruption from the war in Iran has created huge dislocations across energy markets, sending physical premiums surging for crude and fuels and creating the type of conditions that commodity traders typically thrive on. Vitol Group and Trafigura Group, the biggest independent oil traders, reaped bumper profits in the first three months of this year.
BP’s sprawling in-house trading team handles cargoes from its own assets as well as third parties around the world, and the oil major had already signposted that its performance in the quarter was “exceptional.” Brent oil futures rose 43% in March, the first full month of the conflict.
“A solid result for Meg’s maiden set of numbers, clearly supported by an extremely volatile but supportive macro environment,” RBC Capital Markets analyst Biraj Borkhataria wrote in a note. Her priorities “are clearly laid out and pretty straightforward — pay down the debt, get the house in order and put the company on firmer footing.”
Just weeks into the job, O’Neill is already restructuring BP by moving to a traditional upstream-downstream model, with one division focusing on exploration and production and another on refining and trading. The simplification had been a demand from activist investor Elliott Investment Management and others.
BP suspended its share buyback program in February to clear the decks for the incoming CEO, and that was maintained. Instead, the London-based company will cut its perpetual hybrid bond stack by $4.3 billion to about $9 billion by the end of 2027, redeeming the bonds this year and next without replacement.
The focus will remain on strengthening the balance sheet, O’Neill and Chief Financial Officer Kate Thomson said in a phone interview. The windfall from strong results will go toward debt reduction rather than shareholder returns, she said.
“Excess cash is going to the balance sheet,” Thomson said. “Buybacks ultimately will remain a tool as and when appropriate, but for now we need to build back our balance sheet.”
Net debt rose in the quarter as the same price surge that lifted profits forced BP to tie up cash in unsold crude and longer shipping routes. Cash flow from operations was little changed from a year earlier, as much of the trading windfall has yet to actually hit BP’s balance sheet.
BP raised its structural cost-reduction target by up to $1 billion, now aiming to slash as much as $7.5 billion by the end of 2027, supported by the planned sale of its Gelsenkirchen refinery in Germany.
BP shares rose more than 3% in London trading on Tuesday.
They are up more than 30% this year, lagging only TotalEnergies SE, which also has a large global trading operation. Exxon Mobil Corp. was hit hard by the Middle East conflict, while Chevron Corp. faced a fire at its giant Tengiz operation in Kazakhstan. The three companies report earnings later this week while Shell Plc reports next week.
BP’s net earnings beat — compared with an average analysts’ estimate of $2.6 billion — lands just days after a bruising annual general meeting, where Chairman Albert Manifold drew an 18% protest vote, an unusually large rebuke for board members. Two board-backed resolutions failed to win the 75% support required to pass.
Some investors questioned why the board blocked a shareholder resolution from Dutch activist group Follow This calling for disclosure on how BP would create value in a declining oil-demand scenario.
Follow This founder Mark van Baal said Tuesday that BP’s profit jump isn’t a substitute for a longterm plan.
“Bragging about a windfall is not a strategy. It is a delay, not a direction,” he said in a statement, noting that BP’s quarterly dividend of 8.32 cents remains below its pre-Covid level of 10.5 cents per share.
Still, shareholders widely backed O’Neill at the annual meeting.
She is “showing much-needed focus on the balance sheet and capital discipline,” Bloomberg Intelligence senior analyst Will Hares said in a note on Tuesday. But BP will also need to show sustained cash generation this year to close its valuation gap to peers, he added.
Middle East
Oil and gas production held broadly flat at the equivalent of 2.34 million barrels a day in the quarter, with strong output from the Gulf of Mexico and US shale offsetting disruption in the Middle East, where BP has 411,000 barrels of daily production across Iraq, Oman and the United Arab Emirates.
The company didn’t disclose what share is offline but said it has been shipping some of its Abu Dhabi barrels through the Fujairah terminal in the Gulf of Oman to avoid the Strait of Hormuz. Second-quarter upstream output is expected to be lower on seasonal Gulf of Mexico maintenance and continued Middle East disruptions. Overall, BP expects full-year reported upstream production to be lower due to the conflict.
The disruption has meant BP cargoes have taken “different and unusual supply routes,” Thomson said. The company has been moving jet fuel and diesel from refineries in the US and Rotterdam to Australia, “which is where the need was most acute.”
Net debt, excluding hybrid bonds and lease obligations, rose 14% from the end of last year to $25.3 billion. BP said the increase reflects a $6 billion build in working capital due to elevated costs. The company maintained a net debt target range of $14 billion to $18 billion by the end of 2027.
BP’s gearing, the ratio of net debt to equity, rose to 24.7% in the first quarter, up from 23.1% to end 2025.
For O’Neill, the biggest test will be to show the company can continue to deliver when the macro environment isn’t as supportive and oil prices fall.
(Updates with analyst comment in sixth paragraph, CFO comment in 10th paragraph.)
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