BP Faces Billion-Dollar Impairments Amid Energy Transition

BP (LON: BP) shares edged lower on Wednesday after the oil giant released its fourth-quarter 2025 trading statement, outlining expectations that include significant post-tax adjusting items related to impairments.

These impairments, estimated between $4 billion and $5 billion, primarily stem from the company's transition businesses and equity-accounted entities.

These charges, largely impacting the gas and low carbon energy segment, will be excluded from underlying replacement cost profit.

Markets reacted cautiously to the news, as investors digested the implications of these substantial write-downs. The impairments signal a potential re-evaluation of BP's investments in its transition businesses, raising questions about the pace and profitability of its shift towards cleaner energy sources.

The company anticipates broadly flat upstream production compared to the previous quarter, reflecting stability in oil production & operations offset by a decline in gas & low carbon energy.

Realizations in the gas & low carbon energy segment are expected to take a $0.1 to $0.3 billion hit, influenced by non-Henry Hub natural gas marker prices. Gas marketing and trading results are projected to be average.

Oil production & operations are also anticipated to see a negative impact of $0.2 to $0.4 billion on realizations, due to price lags affecting BP's production in the Gulf of America and the UAE. Within the customers & products segment, seasonal volume decreases and stable fuel margins are expected to weigh on performance.

Stronger refining margins, projected to add $0.1 billion, are expected to be offset by turnaround activity and the temporary impact of reduced capacity at the Whiting refinery following a fire. Oil trading results are expected to be weak.

BP expects its net debt to fall to between $22 billion and $23 billion by the end of the fourth quarter, compared to $26.1 billion at the end of the third quarter. This reduction includes approximately $3.5 billion in proceeds from divestments during the quarter, bringing the full-year total to around $5.3 billion, exceeding the initial guidance of above $4 billion.

Driver Breakdown:

• Transition Business Challenges: Impairments highlight potential difficulties in the profitability and valuation of BP's investments in renewable energy and low-carbon technologies.
• Realization Pressures: Price lags and fluctuating gas prices are negatively impacting realizations in both the oil and gas segments.
• Divestment Success: Exceeding divestment targets has significantly contributed to debt reduction, providing financial flexibility.

The underlying effective tax rate for the full year is now expected to be around 42%, higher than the previously guided 40%, primarily due to a shift in the geographical mix of profits. Trading conditions saw Brent crude averaging $63.73 per barrel in the fourth quarter, down from $69.13 in the third quarter.

US gas Henry Hub prices averaged $3.55/mmBtu, up from $3.07/mmBtu in the previous quarter. The BP Refining Indicator Margin (RIM) averaged $15.2/bbl, slightly lower than the $15.8/bbl in the third quarter.

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