BP shares dip after warning weak refining will hit Q2 profit

By Ron Bousso and Arunima Kumar

LONDON (Reuters) -Weak refining margins and lower oil trading results will dent BP's second-quarter profit by up to $700 million, the company said on Tuesday, sending its shares down by over 4%.

The warning, which led several analysts to lower their earnings estimates, will weigh on CEO Murray Auchincloss' efforts to rebuild investor confidence in BP's strategy.

U.S. oil major Exxon Mobil on Monday also signalled that lower refining margins and natural gas prices would reduce its second-quarter profit.

The London-listed company said refining margins will be significantly lower in the quarter due to weak diesel prices and narrower North American heavy crude oil differentials that impact its large refinery in Whiting, Indiana.

As a result, earnings in the second quarter will be between $500 million and $700 million lower than for the previous three months.

A high level of refinery maintenance compared with the first quarter will be offset in part as the Whiting refinery resumes operations in the quarter, resulting in an earnings uplift of around $500 million, BP said.

BP also expects to record $1 billion to $2 billion in charges in the second quarter, mainly tied to its review of Gelsenkirchen refinery in Germany.

BP shares closed 4.3% lower, compared with a small dip in rival Shell's shares. So far this year, BP's shares have dropped by 2.5%, compared with a 10% gain for Shell's shares, and a nearly 12% rise in Exxon's shares.

Citi analysts lowered their Q2 earnings per share estimate by 9% while Jefferies analysts expected the update to result in a 20% earnings downgrade.

Investors expect BP's second-quarter underlying replacement cost profit, the company's definition of net income, to come in at $3.13 billion, according to LSEG data.

Reuters reported earlier this year that BP had imposed a hiring freeze and paused renewables projects as part of Auchincloss' plan to boost returns and cut costs by $2 billion.

"Alongside any major strategic shifts, BP needs to demonstrate competence in the day-to-day running of the business and today's update doesn't help in that sense," AJ Bell investment director Russ Mould said in a note.

BP, which is set to post its quarterly results on July 30, said its upstream production in the second quarter is expected to be broadly flat compared with the prior three months.

Oil and gas production stood at 2.38 million barrels of oil equivalent per day (boepd) in the first quarter, following field start-ups in Azerbaijan and the United States.

Higher realised oil prices in the second quarter will boost profits by $100 to $300 million, BP said.

Last week, Shell had said it would take an impairment charge of up to $2 billion relating to the sale of its Singapore refinery and the pause of construction at one of Europe's largest biofuel plants in the Netherlands.

(Reporting by Arunima Kumar in Bengaluru; editing by Jason Neely, Arun Koyyur, Barbara Lewis and David Evans)