BP Plc (LON:BP) shares edged higher on Monday after the company released preliminary second-quarter figures showing a sharper reduction in debt compared to the decline in production. The stock rose 0.3% to 518.8 pence in London trading, bucking the broader market trend.
Debt Reduction Outpaces Output Decline
According to the company's initial estimates, net debt decreased by 11.1% at the midpoint, falling to between $22 billion and $23 billion from $25.3 billion at the end of the first quarter. In contrast, upstream production declined 6.2% to a range of 2.170 million to 2.220 million barrels of oil equivalent per day. The pace of debt reduction was approximately 1.8 times faster than the output decrease.
The gap is significant given that BP halted its quarterly share repurchases in February, redirecting capital toward debt reduction and higher-return oil and gas projects. Chief Executive Meg O'Neill has emphasized stricter spending controls, asset reduction, and lower debt as key priorities.
Market Context
Brent crude oil briefly surpassed $90 per barrel before settling at $89.13, up 1.2%, following a 15.9% surge the previous week. The rally was driven by ongoing geopolitical tensions, though the same conflict has also disrupted physical shipments. Only four vessels traversed the Strait of Hormuz on Sunday, compared to eight the previous day, highlighting supply chain risks.
Shell Plc (LON:SHEL) also rose 0.3% in London, while TotalEnergies SE (EPA:TTE) advanced 0.9% in Paris.
Financial Details
BP attributed the cash inflows to higher oil prices. The company forecasts oil-production profits to increase by $1.8 billion to $2.1 billion compared to the first quarter, while refining profits are expected to rise by $1.2 billion to $1.4 billion. Oil trading is anticipated to see modest improvement.
However, production declined due to seasonal maintenance and disruptions in the Middle East. The company's net-debt target for the end of 2027 remains at $14 billion to $18 billion. By the end of the second quarter, the midpoint had closed approximately 30% of the gap to the target since March.
Strategic Moves
O'Neill described the company's reset in direct terms, stating, "We need to make fewer, better choices." The recently announced Iraq deal with ConocoPhillips (NYSE:COP), which agreed to acquire a 42% stake in BP's Kirkuk operation, serves as a test case for this strategy. The partnership is not expected to require major capital investments, though financial terms were not disclosed.
Risks and Outlook
UBS analyst Giovanni Staunovo noted that "the oil market is once more becoming tight," linking his outlook to a decline in tanker departures from the Gulf. However, risks remain elevated. A disruption in the Strait of Hormuz could drive crude prices higher while reducing BP's shipping capacity or output. Conversely, if oil prices fall, debt reduction efforts could face pressure without the support of a war premium.
BP anticipates transition-business impairments of around $1 billion and exploration write-offs of $500 million, highlighting ongoing concerns about asset quality. The company is scheduled to release full second-quarter results on August 4, with investors closely monitoring cash flow, working capital, and progress toward the debt target range.
