British oil and gasoline company BP (British Petroleum) signage is being pictured in Warsaw, Poland, on July 29, 2024.

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British oil major BP on Tuesday reported its weakest quarterly earnings in nearly four years, weighed down by a slump in crude prices and lower refining margins.

The energy firm posted underlying replacement cost profit, used as a proxy for net profit, of $2.3 billion for the July-September period. That beat analyst expectations of $2.1 billion, according to an LSEG-compiled consensus.

BP reported net profit of $2.8 billion for the second quarter of the year and $3.3 billion for the third quarter of 2023.

The firm’s third-quarter results were the weakest since the fourth quarter of 2020, when industry profits cratered during the coronavirus pandemic.

“We have made significant progress since we laid out our six priorities earlier this year to make bp simpler, more focused and higher value,” Murray Auchincloss, CEO of BP, said in a statement.

“In oil and gas, we see the potential to grow through the decade with a focus on value over volume. We also have a deep belief in the opportunity afforded by the energy transition – we have established a number of leading positions and will continue high-grading our investments to ensure they compete with the rest of our business.”

Shares of BP traded down over 4% at 2:10 p.m. London time, extending losses from earlier in the session to notch their lowest level since July 2022.

The stock price is down over 16% year-to-date, underperforming its European rivals as investors continue to question the firm’s investment case.

BP maintained its dividend at 8 cents per share after raising it in the second quarter and said it would keep the rate of its share buyback program unchanged at $1.75 billion over the next three months.

The company said it is committed to announcing a further $1.75 billion share buyback in the fourth quarter but warned that, as part of an update to its medium term plans in February, it intends “to review elements of our financial guidance, including our expectations for 2025 share buybacks.”

Analysts at RBC Capital Markets said Tuesday that given the weaker macro environment, it expects BP to trim its shareholder returns next year.

“However we also expect BP to walk away from its ‘surplus payout ratio’ guidance and move towards the rest of the sector on a CFFO payout, which would also allow more room for de-leveraging,” they added. CFFO refers to cash flow from operating activities.

‘BP on the back foot’

Net debt rose to $24.3 billion in the July-September period, up from $22.6 billion at the end of the second quarter. BP said the increase was primarily driven by lower operating cash flow, higher capital expenditures and lower divestment.

Oil prices fell by more than 17% in the third quarter amid concerns about the outlook for global oil demand.

“Against a backdrop of difficult trading conditions, this last quarter has not been plain sailing for BP and profit is considerably lower than it was this time last year,” John Moore, senior investment manager at wealth manager RBC Brewin Dolphin, said in a research note.

BP CEO Murray Auchincloss speaks at the panel dicscussion during the Abu Dhabi International Petroleum Exhibition and Conference held at ADNEC Exhibition Center on October 2, 2023.

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“Oil price conditions, combined with the costs associated with simplification of the business has put BP on the back foot,” Moore said.

“There has been a feeling of uncertainty around the company’s strategic financial priorities but the announcement of share buybacks and dividends today will be welcomed by the market,” he added.

Oil and gas production

BP’s latest results come shortly after reports emerged the company scrapped its pledge to reduce oil and gas production by 2030, rolling back a core tenet of the firm’s ambition to achieve net zero emissions by the middle of the century — or sooner.

The move, reported by Reuters on Oct. 7, citing three unnamed sources, would be viewed as further evidence of CEO Auchincloss’s plan to prioritize near-term returns from the firm’s more profitable fossil fuel operations.

BP was also said to be targeting several new investments in the Middle East and the Gulf of Mexico to boost oil and gas output, the news agency reported.

A BP spokesperson told CNBC: “As Murray said at the start of year in our fourth quarter results, the direction is the same – but we are going to deliver as a simpler, more focused, and higher value company.”

Britain’s Shell and France’s TotalEnergies are scheduled to report quarterly results on Thursday, with U.S. majors Exxon Mobil and Chevron set to follow suit on Friday.

Last week, Norwegian oil and gas producer Equinor reported a 13% drop in adjusted operating income in the July-September period, missing analyst expectations.