BP plc is forecasting continued high prices and volatility in the natural gas market through year-end, following an “exceptional” third quarter for its gas marketing and trading business, management said Tuesday (Nov. 1).

Breaking down the supermajor’s quarterly results on a conference call, CFO Murray Auchincloss said that reduced Russian pipeline imports to Europe “led to sharp increases in both spot and futures prices” on the continent, with the quarterly average Title Transfer Facility contract rising by 92% sequentially. 

“Prices also rose in the U.S. as summer cooling demand offset the loss of Freeport LNG exports,” Auchincloss said. Results for BP’s gas and low carbon energy segment “benefited from an exceptional gas marketing and trading performance, higher production and higher gas realizations.”

Adjusted profits for the gas and low carbon energy segment totaled $6.24 billion for the quarter, up from $3.08 billion in 2Q2022 and $1.81 billion in 1Q2022.

The quarter also included BP’s announced purchase of EDF Energy Services, a transaction which – subject to regulatory approvals – would expand BP’s U.S. commercial and industrial retail power and gas business.

BP is by far North America’s largest natural gas marketer by transacted volume, according to NGI’s quarterly survey of top marketers.

“Looking ahead to the fourth quarter, we expect gas prices to remain elevated and volatile with the outlook heavily dependent on Russian pipeline flows and the severity of the Northern Hemisphere winter,” Auchincloss said.

The Brent oil price, meanwhile, averaged $101/bbl during 3Q, down from $114 during the second quarter. “This reflected increased uncertainty around the economic outlook and the continued Covid-related lockdowns in China,” Auchincloss said. “Despite this uncertainty, we expect oil prices to remain elevated in the fourth quarter given the backdrop of low inventory levels, OPEC-plus supply cuts, limited supply growth and uncertainty around Russian exports.”

Lower 48 Output Rising

Lower 48 onshore production from subsidiary BPX Energy averaged 347,000 boe/d during the quarter, including 1.22 Bcf/d of natural gas and 137,000 b/d of liquids. These figures compare to 322,000 boe/d, 1.12 Bcf/d and 130,000 b/d in 3Q2021.

Average Lower 48 price realizations were $7.06/Mcf for natural gas and $63.94/bbl for liquids, up from $3.53/Mcf and $52.25/Mcf a year earlier. 

BPX Energy had an average of seven operated rigs running during the period, including three each in the Haynesville and Eagle Ford shales, and one in the Permian Basin.

BPX Energy’s capex on a cash basis totaled $478 million for the period, up from $308 million in 3Q2021.

Solving the ‘Energy Trilemma’

BP is maintaining full-year capital expenditure (capex) guidance of around $15.5 billion for 2022 if the company’s acquisition of biogas producer Archaea Energy Inc. is completed before year-end.

Over the medium-term, BP is maintaining a forecast annual capex range of $14-16 billion.

BP expects the Archaea transaction to reduce the firm’s carbon intensity, “deepen our participation in the rapidly growing biogas sector,” and “add distinctive value as we integrate biogas supply from Archaea Energy with our experienced trading business and global customer relationships,” according to Auchincloss.

Other clean energy ventures include a planned collaboration with Hertz Global Holdings Inc. to install a North American network of electrical vehicle charging solutions for the rental car company.

In Australia, BP also closed the acquisition of a 40.5% stake in “one of the world’s largest planned renewables and green hydrogen energy hubs.”

Recent milestones for BP’s upstream business include the completion of Azule Energy, a joint venture in Angola with Eni SpA; a final investment decision on the Cypre gas project offshore Trinidad and Tobago; and an agreement to divest BP’s Algeria assets to Eni. 

“This quarter’s results reflect us continuing to perform while transforming,” said CEO Bernard Looney. “We remain focused on helping to solve the energy trilemma – secure, affordable and lower carbon energy.”

He added, “We are providing the oil and gas the world needs today – while at the same time – investing to accelerate the energy transition. Our agreement on Archaea Energy is the most recent step in our strategic transformation of BP.”

Gas Prices, Profits Soar

BP generated surplus cash flow of $3.5 billion during the period, which it plans to put toward a $2.5 billion share buyback prior to announcing fourth-quarter results. This brings total announced share buybacks from 2022 surplus cash flow to $8.5 billion, management said.

Capex totaled $3.19 billion for the third quarter, up from $2.9 billion in 3Q2021.

BP reported oil and gas production for the quarter of 1.317 million boe/d, largely flat with 3Q2021.

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BP expects fourth quarter upstream production to be slightly lower than in 3Q2022, “primarily in our gas regions,” the company said. For full-year 2022, the company expects reported upstream production to be slightly higher than 2021, “despite the absence of production from our Russia incorporated joint ventures.”

BP’s underlying replacement cost profit, a metric similar to U.S. net profit/loss, was $8.15 billion ($43.15/share), up from $3.32 billion ($16.48) in the same period last year.  

The result “was impacted by weaker refining margins, an average oil trading result and lower liquids realizations, partly offset by an exceptional gas marketing and trading result and higher gas realizations,” management said.