High oil prices dividend hedge transformation pains! BP p.l.c. Sponsored ADR (BP.US) announced Q2 performance: oil trading revenue expected to continue increasing, while low-carbon business will take another $1 billion write-down.

BP p.l.c. Sponsored ADR (BP.US) stated in a trading update released on Tuesday that it expects oil trading profits in the second quarter to increase slightly from the exceptionally strong first quarter, but will also recognize a write-down of about $1 billion for energy transition business, signaling the British energy giant's continued progress in difficult strategic adjustments while refocusing on its core oil and gas business. Due to the conflict in Iran leading to the actual closure of the Strait of Hormuz and interruptions in global crude oil supply, international oil prices surged significantly in the second quarter. BP p.l.c. Sponsored ADR stated that the global benchmark Brent crude oil averaged around $97 per barrel during the months of April to June, much higher than the $78 in the first quarter and around $67 in the same period last year. Refining margins also soared from $16.9 per barrel in the first quarter to $29.6. The company estimates that for every $1 change in refining margins per barrel, annual pretax profit will change by approximately $550 million. High oil prices, coupled with price lag effects, significantly increased BP p.l.c. Sponsored ADR's upstream earnings. The company expects second-quarter earnings from oil production and operations to increase by $1.8 billion to $2.1 billion compared to the first quarter, with significant contributions from production in the Gulf of Mexico and the UAE. The realization of prices for natural gas and low-carbon energy sectors is expected to bring in an additional $500 million to $700 million in income. However, trading performance for natural gas is expected to remain relatively unchanged. In terms of production, BP p.l.c. Sponsored ADR expects upstream production in the second quarter to decrease to a daily range of 2.17 million to 2.22 million barrels of oil equivalent, lower than the 2.34 million barrels in the first quarter. The company explained that this is mainly due to seasonal maintenance and disruptions in the Middle East region, and it is expected that full-year upstream production will decrease due to interruptions around the Persian Gulf. Currently, the company's daily production in Iraq, Oman, and the UAE totals approximately 400,000 barrels, although the specific proportion of production shut down has not been disclosed. Previously, it was stated that some Abu Dhabi crude oil is being shipped through the Fujairah terminal in Oman to avoid the strategic chokepoint of the Strait of Hormuz. Of note, BP p.l.c. Sponsored ADR once again recorded a large write-down for its low carbon business. This write-down of about $1 billion mainly targets the so-called "transition business" and is not included in the underlying reset cost profit. This is another asset clearing after the company recorded a write-down of up to $5 billion for energy transition assets earlier this year. Additionally, the company will confirm a write-down of approximately $500 million for exploration assets in the second quarter, primarily related to the sale of Canadian Bay du Nord offshore project interests. Since the appointment of new CEO Meg O'Neill on April 1st, the British energy giant has noticeably accelerated its return to traditional oil and gas business. O'Neill has restructured the leadership team and reporting structure, further consolidating her power after the former chairman, trading chief, and deputy CEO departed. Most recently, former chairman Albert Manifold was dismissed due to "serious issues" in company behavior, oversight, and governance, leading to continued turmoil within the group and increased pressure on O'Neill to drive the company's transformation. Financially, BP p.l.c. Sponsored ADR has made progress in reducing its debt. The company expects to reduce net debt to $22 billion to $23 billion by the end of June, significantly lower than the $25.3 billion at the end of the first quarter. In the second quarter, BP p.l.c. Sponsored ADR paid $2.9 billion to redeem 2.5 billion perpetual hybrid bonds and paid $1.1 billion towards liabilities related to the Gulf of Mexico oil spill incident. Overall, net debt, hybrid bonds, and Gulf of Mexico settlement liabilities decreased by approximately $6.3 billion to $7.3 billion from the previous quarter. The company's goal is to further reduce net debt to $14 billion to $18 billion by the end of next year. Analysts at Barclays PLC Sponsored ADR, including Lydia Rainforth, stated in a research report released on Tuesday that, "Although asset write downs are not ideal, the downstream business performance exceeding expectations, oil trading achieving record results, and continued decrease in net debt all constitute positive offsetting factors." Following the release of this mixed update, BP p.l.c. Sponsored ADR's stock price in London briefly rose by 3%, in sync with oil futures, and slightly outperformed European counterparts Shell (SHEL.US) and TotalEnergies (TTE.US). Looking at the overall performance for the year, BP p.l.c. Sponsored ADR outperformed Shell but still lagged behind TotalEnergies. BP p.l.c. Sponsored ADR is set to officially announce its second-quarter full financial report on August 4th.