BP sees boost from energy prices in second quarter but flags $1 billion impairment

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By Stephanie Kelly

LONDON, July 14 (Reuters) - BP expects stronger oil and gas prices, robust oil trading and higher refining margins to lift second-quarter earnings, the British energy major said on Tuesday, extending gains from an energy price rally sparked by the Iran war.

At the same time, second-quarter results are expected to include around $1 billion of impairments, primarily related to its lower-carbon energy transition businesses. BP declined to give further details.

The U.S.-Israeli war on Iran, which led to Iran effectively shutting the Strait of Hormuz, disrupted global supplies and pushed crude oil and gas prices to multi-year highs, delivering a windfall for major energy producers. Shell last week flagged strong oil and gas trading profits.

BP said stronger prices were expected to add a $1.8 billion to $2.1 billion boost to earnings in its oil production and operations business compared with the first quarter, while its gas and low-carbon energy segment should benefit by a further $500 million to $700 million.

Stronger refining margins are expected to lift earnings in BP's products business by $1.2 billion to $1.4 billion, while the company expects its oil trading result to be slightly higher than the previous quarter's exceptionally strong performance.

PRICE RALLY OFFSETS LOWER OUTPUT

Global benchmark Brent crude prices hit multi-year highs and averaged around $97 per barrel during the April-to-June quarter, up from around $78 in the first quarter and about $67 a year earlier.

The quarterly trading statement prompted Citi to raise its second-quarter earnings-per-share forecast for the company by 18%.

Shares in BP rose 2% by 1222 GMT, compared with a 1.1% gain in the broader European energy sector.

BP said it expects upstream production to fall in the second quarter to between 2.17 million and 2.22 million barrels of oil equivalent per day from around 2.34 million boed in the previous three months, due in part to the effects of the crisis.

The company said net debt stood at $22 billion to $23 billion at end-June, down from $25.3 billion at the end of March, with a target to reduce this further to $14 billion to $18 billion by the end of next year.

It made a $2.9 billion payment to redeem €2.5 billion of perpetual hybrid bonds, leaving it with a total of about $13 billion outstanding. It also paid $1.1 billion in Gulf of Mexico settlement liabilities.

Overall, BP expects net debt, hybrid bonds and Gulf of Mexico settlement liabilities to decrease by around a combined $6.3 billion to $7.3 billion from the previous quarter.

On the $1 billion impairment flagged by BP, RBC analysts said, "We believe both LightsourceBP and Archaea could face the chopping block (although not formally announced by the company as far) and see no place for either in BP's portfolio long term."

BP also sees exploration write-offs totalling around $500 million in the second quarter, primarily related to the sale of its stake in the Bay du Nord project offshore Canada.

(Reporting by Stephanie Kelly; Editing by Joe Bavier, Kirsten Donovan and Louise Heavens)