BP plc (NYSE: BP) on Friday reported third-quarter underlying replacement cost profit, its adjusted earnings measure, of $8.46 billion, nearly four times the $2.21 billion it earned a year earlier. The London-based company also cut net debt to $13.9 billion, meeting its debt reduction target a year early.
Analysts had expected BP's third-quarter profit to come in at $7.33 billion, according to a company-provided poll. The result comes as the U.S.-Israeli war on Iran has lifted profits across oil majors, and BP said it would direct surplus cash to its balance sheet and its remaining Deepwater Horizon liabilities.
"We have now delivered our net debt and structural cost reductions targets and have line of sight on the remaining two of the four primary financial targets we set ourselves for 2027," Chief Executive Meg O'Neill said in the earnings release.
#Refining Margins Lift BP Third-Quarter Profit to $8.46 Billion
Profit rose by $2.7 billion from the second quarter, which BP attributed mainly to higher realized refining margins and a much stronger gas marketing and trading result. Its refining indicator margin, a simple gauge of what it earns turning crude into fuels, averaged $46.7 a barrel, against $29.6 in the second quarter and $15.8 a year earlier.
The products business, which covers refining and oil trading, added $2.5 billion to its underlying result from the previous quarter. The customers business, which includes fuel retail and Castrol lubricants, fell by $0.5 billion on weaker fuel margins and lower Castrol and midstream earnings.
BP produces oil and gas, runs refineries and sells fuel through retail brands including Aral, ampm and Thorntons. Brent crude averaged $96.99 a barrel in the quarter, compared with $69.13 a year earlier, according to company data.
Reported profit attributable to shareholders was $4.7 billion, up from $1.2 billion a year earlier. The gap with the underlying figure reflects $5.4 billion in net adverse adjusting items, including $4 billion of post-tax impairments largely tied to transition businesses, partly offset by $1.6 billion of inventory holding gains.
O'Neill said in the release that the company knows it needs "to be better stewards of our shareholders' capital."
#BP Cuts Net Debt by $8.4 Billion and Targets Deepwater Horizon Costs
Operating cash flow rose to $14.8 billion from $7.8 billion a year earlier, while capital spending fell to $3 billion from $3.4 billion. Net debt dropped by $8.4 billion during the quarter, and gearing fell to 14.8% from 22.6% at the end of June.
"This is good progress, but we are still too leveraged and further strengthening of the balance sheet remains our number one job," O'Neill said.
BP said it intends to prioritize excess cash flow to settle its remaining Deepwater Horizon liabilities in full, after agreeing last week with the State of Louisiana to speed up its settlement commitments. Payables and provisions linked to the 2010 Gulf of America spill stood at $5.94 billion at the end of September.
The company kept its quarterly dividend at 8.66 cents per share, up from 8.32 cents a year earlier. It expects the sale of a 65% stake in Castrol to Stonepeak to close imminently, bringing in about $6 billion, and now forecasts around $8 billion of divestment proceeds for 2026.
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#BP Expects Weaker Fourth Quarter Ahead of Dec. 15 Strategy Update
BP forecast fourth-quarter upstream production of 2,090 to 2,230 thousand barrels of oil equivalent a day, citing continued Middle East disruption, lower seasonal gas demand and a weather event in the Gulf of America. It expects a significantly lower result in its customers business and refinery throughput of 1,160 to 1,210 thousand barrels a day.
The lower throughput reflects the sale of Germany's Gelsenkirchen refinery, completed on July 31, and more maintenance work. BP also expects fourth-quarter income tax payments to be about $0.8 billion higher than in the third quarter because of higher profits.
The company plans to set out its longer-term strategy, capital framework and new performance targets at an investor update in New York on Dec. 15.
Management expects refining margins to remain elevated in the fourth quarter, though it said margins, fuel sales and production remain sensitive to conditions in the Middle East, while further impairments, the timing of asset sales and Deepwater Horizon payments remain key risks to the outlook.