Nearly four years, BP experiences its weakest quarterly earnings due to decreased crude prices.

• BP's underlying replacement cost profit for the July-September period was $2.3 billion, exceeding analyst expectations of $2.1 billion, as per an LSEG-compiled consensus.
• In 2023, the British oil major reported a net profit of $2.8 billion for the second quarter and $3.3 billion for the third quarter.
• Since the fourth quarter of 2020, the firm's third-quarter results have been the weakest due to the pandemic's impact on the industry.

On Tuesday, BP reported its weakest quarterly earnings in nearly four years due to a decline in crude prices and lower refining margins.

The energy firm's underlying replacement cost profit for the July-September period was $2.3 billion, exceeding analyst expectations of $2.1 billion, according to an LSEG-compiled consensus.

In the second quarter of 2023, BP reported a net profit of $2.8 billion, while in the third quarter, the company's net profit was $3.3 billion.

Since the fourth quarter of 2020, the firm's third-quarter results have been the weakest due to the pandemic's impact on the industry.

BP CEO Murray Auchincloss stated that the company has made significant progress in simplifying, focusing, and increasing value since outlining six priorities earlier this year.

"We believe that in the oil and gas industry, there is potential for growth in the coming decade by prioritizing value over volume. Additionally, we have faith in the opportunities presented by the energy transition and have already established several leading positions. We will continue to prioritize high-grading our investments to maintain a competitive edge within our business."

On Tuesday morning, the stock price of London-listed BP dropped approximately 2.5%. Year-to-date, the stock has underperformed its European counterparts, with a decline of over 16%. This has led investors to question the company's investment case.

BP kept its dividend at 8 cents per share after increasing it in the second quarter and announced that it would maintain the rate of its share buyback program at $1.75 billion over the next three months.

The company announced its intention to review its financial guidance, including its expectations for 2025 share buybacks, while committing to announcing a further $1.75 billion share buyback in the fourth quarter.

According to RBC Capital Markets analysts, BP is predicted to reduce its shareholder returns due to the weaker macroeconomic conditions.

Additionally, we anticipate BP to abandon its "surplus payout ratio" directive and align with the industry standard of using cash flow from operating activities (CFFO) for payouts, which would also provide more flexibility for de-leveraging.

'BP on the back foot'

The net debt of BP increased to $24.3 billion in the July-September period from $22.6 billion at the end of the second quarter, mainly due to lower operating cash flow, higher capital expenditures, and lower divestment.

In the third quarter, global oil demand concerns caused oil prices to drop by over 17%.

John Moore, senior investment manager at wealth manager RBC Brewin Dolphin, stated in a research note that this last quarter has not been easy for BP due to challenging trading conditions, resulting in a significant decrease in profit compared to the same period last year.

BP is facing challenges due to the impact of oil price conditions and the expenses related to simplifying its business, according to Moore.

The market will welcome the announcement of share buybacks and dividends, which has been anticipated due to uncertainty about the company's strategic financial priorities.

Oil and gas production

BP's latest results were released shortly after reports surfaced that the company had abandoned its commitment to reduce oil and gas production by 2030, rolling back a key component of its goal to achieve net zero emissions by the middle of the century or earlier.

According to Reuters' report on Oct. 7, three unnamed sources stated that the move would be seen as proof of CEO Auchincloss's focus on prioritizing short-term profits from the company's more profitable fossil fuel operations.

The news agency reported that BP was aiming to increase oil and gas production in the Middle East and Gulf of Mexico through new investments.

A BP spokesperson stated on CNBC that the company's direction remains the same as Murray mentioned in the fourth quarter results, but they will focus on being a simpler, more valuable organization.

On Thursday, Britain and France will release their quarterly results, while U.S. majors will do the same on Friday.

In the July-September period, Equinor, a Norwegian oil and gas producer, reported a 13% decrease in adjusted operating income, falling short of analyst predictions.