BP Q3 preview: Where next for the BP share price?

BP has deleveraged itself, putting in a solid position to grow dividends and buybacks amid rising oil and gas prices. We explain what to expect from the earnings and consider how BP shares could react.

Energy 4

When will BP release Q3 earnings?

BP will release third quarter earnings on the morning of Tuesday November 2.

 

BP Q3 earnings preview: what to expect from the results

BP rewarded shareholders in its last set of results as it posted another quarter of strong profits following the hefty losses booked at the height of the pandemic last year. Having cut net debt down to $32.7 billion from over $40.9 billion a year earlier, BP bumped up its dividend by 4% to 5.46 cents (from 5.25 cents in the first) and launched a new $1.4 billion share buyback for the third quarter following the $500 million returned in the second.

BP’s net debt is within a comfortable range and is expected to have dropped below the $32 billion mark during the third quarter (having already hit its $35 billion target). Notably, asset disposals continue to help raise cash to shore up the balance sheet. BP is working toward a goal of selling $25 billion worth of assets and had already locked-in $14.9 billion worth of proceeds by the end of June, and said it expected annual proceeds this year to reach $5 billion to $6 billion by the end of 2021.

Notably, BP said in its last update that it would be able to dish-out $1 billion in buybacks each quarter and raise its annual dividend by around 4% per year through to 2025 at an oil price of $60 per barrel.

Understandably, shareholders are feeling confident ahead of the third quarter earnings considering Brent is trading at over $85 per barrel, marking its highest level since 2014, with natural gas prices having followed higher. That should guarantee the buybacks and dividends BP has promised going forward and raises the likelihood that returns could rise further depending on how cashflow has performed.

With this in mind, investors will be keeping a close eye on BP’s buyback plans for the fourth quarter. The dividend is unlikely to be raised beyond the stated goal as this would prove a long-term commitment under a progressive policy, whereas the one-off nature of buybacks provides greater flexibility when returning cash to investors, especially in the current climate.

Analysts are expecting BP to post a reported profit of $3.18 billion in the third quarter, largely level with what was posted in the second and turning from a $450.0 million loss last year. BP’s underlying replacement cost profit – its headline measure – is forecast to come in at $3.13 billion, up from $2.80 billion in the second quarter and from just $86.0 million a year earlier.

Those results, if delivered, will be all the more impressive considering upstream production this year has been markedly lower than the year before, with BP warning that annual output in 2021 will be lower than 2020 because of asset disposals. However, underlying production should be slightly higher year-on-year in 2021 thanks to the launch of new projects such as Zinia Phase 2 in Angola and Manuel in the Gulf of Mexico. That is good timing as the boost to production will allow BP to capitalise on the favourable pricing environment, with reported upstream production to be higher in the third quarter compared to the second.

We can also expect BP to deliver an update on its ambitious shift toward more sustainable energy after starting the transition last year. For context, BP had 1.6 gigawatts of renewable energy capacity installed at the end of June with 3.7GW of projects past the final investment decision phase. Its total renewables pipeline stood at 21.2GW, mainly comprised of solar and offshore wind, which is one of the largest of any oil and gas major.

 

Where next for the BP share price?

The BP share price has traded relatively range bound across the past 6 months, limited on the downside by 285p and capped on the upside by around 335p.  

More recently the share price has rallied higher breaking out of the trading range before meeting resistance at 365p.  

BP has been consolidating around this level over the past week, bringing the RSI back out of overbought territory. 

Buyers could look for a move above 365p to bring 376p the post pandemic high into play.  

Sellers could look to a move below 358p to bring 335p into focus. It would take a move below here to negate the near term up trend. 

Where next for the BP share price?

 

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