BP Braces for $2 Billion in Charges, Lower Upstream Production

BP p.l.c. (BP) has announced that it expects to book up to $2 billion in charges in the fourth quarter of 2024, primarily driven by impairment of capital assets and special income charges. The company also anticipates lower upstream production compared to the prior quarter, with production declines in both oil production & operations and gas & low carbon energy segments. This article explores the factors behind these charges and production declines, as well as the strategic adjustments BP is making to mitigate their impact.

The primary factors driving the expected $2 billion in charges for BP are:

1. Impairment of Capital Assets: BP is expected to incur $1.842 billion in impairment charges related to the impairment of capital assets. This is likely due to the write-down of assets that have become impaired or no longer meet the company's strategic objectives.
2. Special Income Charges: BP is expected to incur $480 million in special income charges. These charges could be related to various factors such as restructuring costs, asset disposals, or other one-time expenses.

These charges are treated as adjusting items and excluded from underlying replacement cost profit.



The lower upstream production is expected to impact BP's financial performance in the near term through various factors, including:

1. Realizations: In the gas & low carbon energy segment, realizations are expected to have a favorable impact in the range of $0.1 - 0.2 billion due to changes in non-Henry Hub natural gas marker prices. However, in the oil production & operations segment, realizations are expected to have an unfavorable impact in the range of $0.2 - 0.4 billion, including the impact of price lags on BP's production in the Gulf of Mexico and the UAE.
2. Exploration write-offs: Exploration write-offs are expected to be $0.1 - 0.2 billion lower compared to the prior quarter.
3. Net debt: Net debt at the end of the quarter is expected to be lower compared to the prior quarter, including proceeds from divestments of around $2.8 billion, the issuance of around $2.5 billion perpetual hybrid bonds, and acquired net debt of around $3.0 billion from the completion of the bp Bunge Bioenergia and Lightsource bp transactions.
4. Non-cash, post-tax charges: The fourth quarter results are expected to include non-cash, post-tax charges related to impairments of $1.0 - 2.0 billion attributable across the segments. These items are treated as adjusting items and excluded from underlying replacement cost profit.

BP is making strategic adjustments to mitigate the impact of these charges and production declines by:

1. Increasing investment in core areas: BP is planning new investments in the U.S. Gulf of Mexico and the Middle East to enhance oil output. For instance, it recently decided to proceed with the Kaskida project, expected to produce 80,000 barrels per day starting in 2029. Additionally, BP is in negotiations to expand in Iraq's Majnoon field and is exploring new developments in Kuwait.
2. Maintaining long-term goals: Despite the strategic pivot, BP commits to achieving net-zero emissions by 2050. This commitment aligns with the broader industry trend of recalibrating energy transition strategies post the economic upheavals caused by geopolitical tensions and market instability.
3. Growing dividends and buybacks: BP has announced a 10% increase in dividend per ordinary share for the fourth quarter, representing 21% growth from 4Q 2021. Additionally, the company has announced further $2.75 billion buybacks, bringing the total to $11.25 billion from 2022 surplus cash flow.
4. Increasing targets: BP has set over 12% annual EBIDA per share growth to 2025 and over 18% ROACE in 2025 and 2030. These targets demonstrate the company's commitment to improving financial performance and mitigating the impact of charges and production declines.

BP's strategic adjustments and commitment to long-term goals suggest that the company is well-positioned to navigate the challenges posed by the expected charges and production declines. However, the full extent of the impact on BP's financial performance will depend on various factors, including market conditions and the company's ability to manage its costs and investments effectively.