BP Anticipates Weak Q1 2025 Results Amid Strategic Shift

BP plc is preparing for a disappointing first quarter of 2025, particularly in its natural gas trading business. The UK-based energy giant signals a challenging start to the year as it realigns its focus towards traditional oil and gas operations.

Production and Performance Expectations

In its quarterly trading update released on Friday, BP indicated that overall upstream production would decline compared to the previous quarter. Oil production is expected to see a slight increase, but natural gas and low-carbon energy output will be lower, due to recent divestments in Egypt and Trinidad that were finalized late last quarter.

The anticipated underperformance in natural gas trading stands out amidst an expected “average” overall result for BP’s oil trading division. The company noted that oil and gas realizations are likely to remain relatively flat on a sequential basis. According to the Zacks Consensus Estimate, BP’s first-quarter earnings are projected at 64 cents per share, a decline from 97 cents reported in the same quarter of the previous year.

Strategic Realignment and Debt Considerations

The decline in gas performance coincides with BP’s strategic pivot back to its core competencies. In February, BP announced a renewed emphasis on fossil fuels, aiming to enhance shareholder returns. This strategy includes launching 10 new oil and gas projects globally between 2025 and 2027.

However, not all segments of BP’s operations appear troubled. The company projects that higher refining margins could contribute between $100 million and $300 million to its first-quarter earnings, providing some cushion against the lackluster performance in natural gas.

In the same update, BP reported a $4 billion increase in net debt for the quarter, primarily due to working capital accumulation. This increase is largely attributed to seasonal inventory effects, bonus payouts, and payments linked to low-carbon assets awaiting sale. BP expects much of this rise in debt to reverse in subsequent quarters.

Debt Reduction Goals and Investor Pressure

As part of its strategy revealed in February, BP reaffirmed its goal of reducing net debt to between $14 billion and $18 billion by 2027, a decrease from the current level exceeding $20 billion.

BP’s shift back toward oil and gas, alongside its focus on project implementation, comes in response to increasing pressure from investors, including the activist hedge fund Elliott, which has urged the company to prioritize shareholder value.

The company is scheduled to release its first-quarter results on April 29, which should provide further insights into the effectiveness of its revised strategy across its portfolio.

BP’s Zacks Rank & Key Picks

Currently, BP holds a Zacks Rank #3 (Hold).

Investors interested in the energy sector may want to consider better-ranked stocks such as Archrock Inc. (AROC), Kinder Morgan, Inc. (KMI), and Enterprise Products Partners L.P. (EPD). Archrock currently boasts a Zacks Rank #1 (Strong Buy), while both Kinder Morgan and Enterprise Products hold a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Stock Analyses: Archrock, Kinder Morgan, and Enterprise Products

Archrock specializes in energy infrastructure focused on midstream natural gas compression. The company provides natural gas contract compression services and generates stable fee-based revenues.

Archrock’s earnings surpassed estimates in three of the past four quarters, with an average surprise of 8.81%.

Kinder Morgan, a leading North American midstream player, has a resilient business model supported by take-or-pay contracts that ensure stable earnings. The company operates one of the largest natural gas pipeline networks in North America, positioning it to benefit from the projected rise in U.S. natural gas demand by 2030.

In its earnings history, Kinder Morgan beat estimates in one of the past four quarters and has delivered an average negative surprise of 1.85%.

Enterprise Products benefits from a vast network of oil and gas pipelines spanning 50,000 miles. The partnership’s acquisition of Pinon Midstream aims to enhance cash flows by servicing the prolific Permian Basin, improving its NGL value chain, and addressing regional infrastructure constraints while ensuring robust customer demand.

Enterprise Products recorded earnings that beat estimates in two of the trailing four quarters, with an average surprise of 1.83%.

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BP p.l.c. (BP): Free Stock Analysis report

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This article originally published on Zacks Investment Research (zacks.com).

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