BP Shares Soar 5.1% on Q3 Profit Beat, LNG Surge

BP PLC, the British energy giant, went through a tumultuous day on the trading floor, as share prices surged up by 5.1% on disclosure of better-than-anticipated third-quarter earnings, fuelled by surging liquefied natural gas (LNG) output and strategic divestment of old assets. The update comes as the FTSE 100 makes slight advances, supported by strong commodity prices as well as hope that the world is in the process of energy shifts.

Third-Quarter Performance Highlights

Underlying replacement cost profit in the quarter was reported at 3.5 billion by BP, an improvement of 12 per cent over the previous quarter and far above the consensus of 3.1 billion.

This strong performance removes the increased oil prices in the market in the form of 82 per barrel and a 22 per cent increase in the LNG trade volumes as Europe scrambles to find alternatives to Russian supplies. Averaged production increased by 4 per cent per year at 2.3 million barrels of oil equivalent per day, upstream, courtesy of ramp-ups in the Azeri-Chirag-Gunashli field in the Caspian Sea.

The combined oil giant also reported the sale of its Egyptian assets to the upstream sector to UAE-based ADNOC at a cost of 1.8 billion dollars, as the latest in a 20 billion-dollar disposition program to rationalise towards renewables. Gapped 512p higher than it was at 487p yesterday, high of 540p intra-50 per cent higher than the 90-day average – turned over more than 25 million units – 50 per cent higher than the 90-day average.

LNG Boom and Cost Discipline Spur Profit Explosion

The focus of the spotlight was on BP LNG, which earned the company 1.2 billion in profits – 35 per cent of the group earnings – in the form of contracts with buyers in the Asia-Pacific region who agreed on premiums. The Tangguh plant in Indonesia recorded the highest ever production of 11.5 million tonnes annualised, and new projects in the U.S. Gulf Coast will yield yet another 20 million tonnes by 2027.

The outperformance was attributed by CEO Murray Auchincloss to agile trading and supply chain resilience, which he said was helped by its hedging strategies against Brent volatility. According to Auchincloss, in a video update, LNG can be used as a bridge fuel to navigate the energy trilemma: energy security, affordability, and sustainability. Capex guidance remained at 16 billion throughout the year, with the 60/40 split in favour of the transition growth area, which comprised biofuels and hydrogen.

Exemplary Measures of the Earnings

• Growth in Production: The North Sea upstream production increased by 5% and offsets the decrease in mature fields through improved technology of recovery.
• Refining Margins: Downstream earnings increased 8 per cent to $800 million, driven by the optimisation of the cracker use of 92 per cent.
• Trading Windfalls: Gas and power trading gained 18 per cent. or $450 million.
• Debt Reduction: Net debt decreased to 22 billion, which resulted in a 15 per cent gearing ratio – the lowest since 2019.

FTSE 100 Solid in Energy Sector Boost

BP energy gave the FTSE 100 some weight, and it increased by 0.4 per cent to 8,510 points, the fourth consecutive weekly rise. The year-to-date progress of the benchmark has now surpassed 13.5, and the energy stocks have risen 18% due to OPEC+ discipline and Middle East supply risks. The pound held its ground at $1.327 with UK CPI cooling and breeding speculation of a rate cut in November.

Businessmen praised the performance of BP. “This is vintage BP: high-grading the portfolio and providing shareholder value in uncertain times,” quipped one of the analysts at Barclays. The forward P/E of 7.2x is a good offer compared to Shell at 8.5x, and the value hunter will be attracted. Competitors Shell recorded an increase of 2.8, whilst Harbour Energy increased 3.5 on a production beat.

However, the green shift of the sector makes the exuberance cool. BP has a 1 billion bet in offshore wind, including a joint-venture in the Moray East farm, which is a strong sign of seriousness, but critics lament the sluggish rate of progress towards its 2030 net-zero goals.

Surviving in the Sea of Volatility: Geopolitics and Transition Risk

BP’s path isn’t without thorns. Rising Ukrainian tension poses a risk to the routes of the Black Sea, which may increase the shipping expenses by 15 per cent. In the meantime, the U.S. LNG export restrictions are under discussion, which may limit the output, but the diversification of the BP portfolio (50% non-OPEC) provides immunity.

The company is experiencing pushback on the transition side: The company had 78 per cent of the votes on the recent advisory vote approving climate plans, but climate activists want the company to divest its oil sands more quickly. In response, BP committed to spending up to $5 billion on low-carbon technologies by 2030, such as in Teesside, on piloting electrolysers.

On the financial front, the board increased its quarterly dividend by 4 per cent to 8 cents per share and its $2.5 billion buyback. This pair is offering a 5.2 per cent trailing yield, which is attracting income hunters as the bond market shivers.

Valuation Snapshot

• EV/EBITDA: x4.1, 20 per cent lower than historical averages, and free cash flow yield, 9 per cent.
• ESG Rating: 30% emissions reduction became an upgrade by MSCI to A.
• Exploration Wins: Suriname Block 58 New Discovery: The block of 58 in Suriname contributes 700 million barrels to reserves as a result of new discoveries.

Echoes on the UK Energy Landscape

Britain has a $150 billion energy economy whose quarterly success echoes the success of BP. The health of the Aberdeen oil hub and the supply chain of Aberdeen rely on its health, as it is the biggest industrial employer in the UK with 55,000 employees. LNG focus is in line with government targets of diversifying imports to 10 per cent by 2030, which would save PS2 billion in energy expenses per year.

The implication for consumers is clearer: By stabilising the wholesale gas prices, which dropped by 5% after the results, Ofgem levies might be cut to save households PS50 per year. However, the Great British Energy project by Labour, which allocates PS8.3 billion to renewables, squeezes incumbents such as BP to move more quickly – a move that the company accommodates through joint ventures in floating solar.

In the case of October portfolios, BP presents as an attractive combination: cyclical gains as the oil rises to $80, and defensive dividends, as well as transition tailwinds. With windfall taxes of up to 35% in sight because of the Autumn Statement, which is fiscally misty, the fortress balance sheet of BP puts it in a better position to survive storms.

Closing Market Note

With its reinvention, today BP is valued at PS92 billion, which is pegged at close to 538p. In a time of change, where net-zero requirements started to supplant supply shocks, BP will not be killed by crude, but it is changing. To FTSE observers, it is a re-energising, lucrative, long-term stock.