BP sees refining margin triple, debt target reached, but flags more impairments

By Stephanie Kelly and Shadia Nasralla

LONDON, Oct 13 (Reuters) - BP estimated on Tuesday its third-quarter refining margins tripled from last year as the Iran war boosts profits for oil majors, but also flagged $3 billion to $4.5 billion in impairments relating to its gas and low-carbon energy segment.

This is the second time in a year that the British firm has booked large write-downs in its low-carbon business after writing down over $4 billion related to its solar, biogas and offshore wind businesses.

BP declined to provide details of the latest writedowns.

Impairments in BP's transition businesses over the last year have added up to around $10 billion, or about 10% of BP's equity before the COVID pandemic earlier this decade, which "showcases the damage BP's previous adventures have caused," RBC analysts said in a note, referring to the foray into renewable energy the group abandoned last year.

"We would imagine the house is now clean, but we also thought that last quarter," RBC said.

REFINING MARGINS SURGE NEARLY 60%

BP estimated its refining indicator margin for the July-September quarter at $46.7 per barrel, up from $29.6 per barrel in the second quarter and $15.8 per barrel a year ago. The Iran war has disrupted global oil supplies, driving up prices and oil majors' margins.

A boost to refining margins will lift BP's profit in the products segments by $1.9 billion to $2.1 billion versus the previous quarter, the group said in a trading statement ahead of results due on October 30.

BP in recent years has changed its methodology for calculating refining margins, making historic comparisons difficult. Rival Shell said last week it expected a record high third-quarter refining margin.

BP expects its third-quarter gas marketing and trading result to significantly exceed that from the previous quarter. The oil trading result is expected to be broadly flat compared with the second quarter, in what has been a strong year in trading for its oil desk.

RBC raised its net profit forecast for the quarter to $7.6 billion from $6.9 billion, citing improved operational indicators and a lower expected tax rate. Citi analysts expect net profit at $6.9 billion.

BP's shares were up 3.7% at 1602 GMT, after touching their highest since April 2010, when the stock plunged after the Deepwater Horizon oil spill. The gain outperformed a 0.8% rise in an index of European energy companies.

NET DEBT TARGET HIT

Helped by a pause in its buyback programme this year, high prices and asset sales, BP expects its net debt to stand at between $13.5 billion and $14.4 billion in the quarter, hitting its target of between $14 billion and $18 billion about a year early.

Together with hybrid bonds, leases and its Deepwater Horizon oil spill liabilities, BP estimated its overall obligations at between $43.6 billion and $44.6 billion in the quarter, down from $53.6 billion in the previous three months. This does not include its $6 billion sale of a stake in its Castrol lubricants business.

BP put its upstream production at 2.19 million to 2.24 million barrels of oil equivalent per day, compared with 2.2 million in the previous quarter.

The firm will provide a strategy and outlook update on December 15 in New York, which will "set out the next phase of delivering a simpler, stronger and more valuable BP," a spokesperson said.

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(Reporting by Stephanie Kelly and Shadia Nasralla; Editing by Kirsten Donovan and Tomasz Janowski)