BP's profits beat expectations. Why are investors selling off the stock?

British oil giant BP reported a smaller-than-expected drop in underlying profit in the third quarter as higher refining margins partially offset the negative impact of low oil prices. However, the company did not provide an update on the process of selling its Castrol lubricants brand, a key deal in a $20 billion divestment program aimed at reducing debt.

BP's inventory replacement cost-adjusted earnings - the equivalent of net income for U.S. oil companies but excluding one-time factors - fell about 3 percent to $2.21 billion in July-September, with analysts on average expecting $2.02 billion. The forecast was beaten by strong results from the gas and refining segments, Reuters reported, citing RBC analyst Biraj Borhataria.

After a failed attempt to pivot toward green energy, BP has placed an increased reliance on oil and gas production in an attempt to increase shareholder value and reduce debt. The company began a review of its asset portfolio, and in October new chairman Albert Manifold called for an urgent simplification of what he called an "overly complex" business. BP now expects asset sales and other income to bring it more than $4 billion in 2025, according to The Wall Street Journal. The previous forecast was $3 billion to $4 billion.

A key element of BP's new strategy is to increase returns to shareholders, as the stock has lagged the growth of rivals Shell, Exxon Mobil and Chevron, the WSJ notes. Activist hedge fund Elliott Investment Management has taken a stake in the company and is pushing for change, which has only added to the sense of urgency.

BP's goal is to reduce net debt from the current $26 billion to $14 billion to $18 billion by the end of 2027. The oil company's plan to sell $20 billion worth of assets by the end of 2027 to improve its balance sheet still includes the Castrol deal, BP chief Murray Okincloss told Bloomberg, without giving details.

Shares of BP at the auction in London first rose by 1% in contrast to the declining sector index STOXX Europe 600 Oil & Gas, but soon lost all the gain and went into minus by 1%. The largest Wall Street bank JPMorgan Chase after BP's quarterly report maintained a neutral rating on the oil giant's shares and a target price of 460 pounds per paper. This suggests a potential upside of about 3% relative to the last closing level.

However, Wall Street is generally more optimistic about BP - according to FactSet, analysts on average recommend the company's stock for purchase with a consensus rating of "above market" (Overweight).

BP was the last of the supermajors to report third quarter earnings. Western oil giants Exxon Mobil, Chevron and Shell also beat expectations, while TotalEnergies reported profits in line with forecasts.

This article was AI-translated and verified by a human editor