BP to Book Up to $2 Billion Impairment, Warns of Lower Refining Margins - Yahoo Finance

BP to Book Up to $2 Billion Impairment, Warns of Lower Refining Margins

BP expects to book an impairment of up to $2 billion for the second quarter, and warned that weak oil trading and lower refining margins would hurt earnings.

The British energy company said Tuesday that it expects its second-quarter results to be hit by after-tax asset impairments and one-off contract provisions of between $1 billion and $2 billion, including charges relating to a review of its Gelsenkirchen refinery in Germany.

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BP said in March that it planned to close a third of the crude-processing refinery’s 265,000-barrels-a-day capacity due to a weakened demand outlook. The London-based company also took a $1.34 billion impairment related to the refinery last year due to a change in the economic outlook, it said in its annual report.

The company expects its customers and products segment result to weaken from the previous quarter as it takes a $500-million-to-$700-million hit from significantly lower realized refining margins. The division booked $1.29 billion in underlying replacement-cost profit before interest and tax in the first quarter.

The warning echoes a similar message from BP’s U.S. peer Exxon Mobil on Monday, when it said lower refining margins across the industry would hurt its second-quarter profits.

BP’s refining margins were mainly harmed by weaker middle distillates margins and narrower North American heavy crude-oil differentials, it said.

Volatile refining results could occur more frequently in the future for oil companies and refiners as they grapple with falling demand for traditional fuels as renewables grow in popularity, XTB research director Kathleen Brooks said in market comment.

Meanwhile, its gas marketing and trading is expected to be average, it said. In the first quarter, BP reported $1.66 billion in the gas and low-carbon energy division.

Tuesday’s update should bring down earnings estimates around 20%, mainly due to the lower trading contribution in both gas and oil and negative revisions in refining, Jefferies analysts said in a research note.

Analysts currently expect the company to book $3.01 billion in underlying RC profit—a metric similar to net income used by U.S. oil companies—according to a consensus polled by FactSet.

However, BP’s upstream volumes look stronger than anticipated, offsetting some of the weakness seen elsewhere, RBC Capital Markets analysts wrote in a note.

Its quarterly upstream production—the extraction of crude oil and natural gas—is expected to be broadly flat on the first quarter, when it produced 2.38 million barrels of oil-equivalent a day. Oil production will be stable on quarter, while gas and low-carbon energy production is set to fall slightly, BP said.

The announced impairments come after its London rival Shell last week warned of non-cash charges, also up to $2 billion, after pausing construction of a major biofuels plant in the Netherlands and relating to the sale of its chemicals plant in Singapore.

BP shares were down 4.3% Tuesday, bringing the shares to a 2.5% fall in the year so far.

BP’s second-quarter results are scheduled to be released on July 30.

Write to Christian Moess Laursen at christian.moess@wsj.com