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BP forecasts impairments of up to $2 billion in Q2 2024

British oil giant BP said it expects after-tax “adverse adjustments” of between $1 billion and $2 billion to its second-quarter 2024 results. These adjustments include significant charges related to the transformation of its Gelsenkirchen refinery in Germany.

Strategic transformation of Gelsenkirchen

The transformation of the Gelsenkirchen refinery, announced in March, aims to reduce the total production capacity of this site from 2025. BP plans to increase the production of low-emission fuels in response to growing pressures for a more sustainable energy transition. This initiative is part of a broader strategy of shifting towards less polluting energies.

Meanwhile, BP warned that its refining margins for the second quarter will be “significantly lower” than the previous quarter, as will Shell’s. The margin decline is attributed to fluctuations in hydrocarbon prices and the impact of ongoing strategic adjustments.

Stability and production prospects

Despite these adjustments, BP said its overall production is expected to remain stable compared to the previous quarter. However, the company expects a slight decline in production in the gas and low-carbon energy segments. This relative stability in oil production contrasts with initial expectations of a slight decline.

The group also stressed that its oil sales will decline, reflecting a trend observed since the beginning of the year. BP had posted a sharp drop in profit in the first quarter, mainly due to the fall in hydrocarbon prices, which had affected its revenue and margins.

Comparison with Shell

Shell, BP’s main rival, recently announced writedowns of up to $2 billion in the second quarter of 2024. The writedowns are mainly related to the suspension of a major biofuels project in Rotterdam, the Netherlands, and its facilities in Singapore.

Shell’s Dutch project to produce sustainable aviation fuel (SAF) and renewable diesel has been suspended without specifying the duration of the pause, resulting in after-tax impairments of $0.6 billion to $1 billion. In addition, Shell’s Singapore facilities could generate impairments of $0.6 billion to $0.8 billion. These adjustments reflect the current challenges the group faces in the context of fluctuating hydrocarbon prices and ongoing strategic adjustments.

Shell also warned that its gas business performance for the second quarter would be in line with a year earlier but lower than the first quarter of 2024 due to seasonality.

Future strategies and implications

Both BP and Shell have slowed down some of their initial climate targets, preferring to focus on oil and gas activities to maximize their short-term profits. This strategic shift has drawn criticism from environmental activists, who see it as a step backward from previous climate commitments.

Upcoming earnings releases and strategic decisions by BP and Shell will provide crucial insights into how well they navigate the pressure for climate action and the need to maintain robust financial returns. How these plans and strategies evolve for both oil giants will be closely watched by analysts and investors.

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