If you own BP (LSE:BP.) shares like me, you’ll probably have taken an interest in the oil and gas producer’s third quarter (Q3 2025) results released this morning (4 November).
In some respects, there should be no major surprises. That’s because the group always releases a pre-trading statement update – two or three weeks in advance — that gives a high-level overview of what to expect. The key numbers are the realised prices for the oil and gas that it sells. Its margin is also important.
As a rule of thumb, a $1 movement in Brent crude affects the group’s pre-tax replacement cost operating profit (its preferred measure of earnings) by $340 (up or down). A $0.10 change in the Henry Hub gas price will affect its bottom line by $40m. And for every $1 variation in the refining indicator margin, the group’s result will be impacted by $550m.
Given the scale of BP’s operations, it’s clear that relatively small changes in these can have a large impact on its profit. However, all of these are largely outside the company’s control. That’s one of the reasons why shares in the sector can be risky.
What did the results show?
Compared to the previous quarter, BP reported a 6.1% fall in underlying replacement cost profit to $2.21bn. However, this was 9.4% better than analysts were predicting.
On a per share basis, the drop was 5.2%, which is a sign that the group’s recent share buyback programmes are working. Another $750m of purchases was announced today.
But I’m particularly interested in whether there are signs that the group’s new strategy is working. Under pressure from some of its larger shareholders, BP announced a change of approach in February, to try and improve cash flow and reduce debt. Alongside disposing of some non-core assets, the group said – much to the horror of environmentalists – that it would increase its investment in hydrocarbons at the expense of low carbon technologies. Cutting overheads was also said to be a top priority.
However, distribution and administrative expenses were $29m more during Q3 2025. In fact, they were equivalent to 13.7% of sales and other operating income. By comparison, Shell’s ratio was 4.8%.
And although operating cash flow was $1.52bn (24.2%) higher quarter-on-quarter, at September, net debt was $1.79bn (7.4%) more than a year ago.
My verdict
To be honest, I think it’s a little too early to tell whether the announced changes are having an impact. The group’s chief executive says it’s making “good progress” and “moving at pace”. Importantly, he says the group’s demonstrating that it “can and will do better for our investors”.
But I’m a long-term investor so I’m happy to wait for further evidence of a turnaround. And bank its above-average dividend in the meantime. Despite this, I don’t want to buy any more shares at the moment. I think holding too much of one particular stock would be a bad idea.
However, I still think it could be one for others to consider. If BP can become more efficient then its cash position should improve relative to its peers. And if it can demonstrate this to the satisfaction of investors, I believe its share price will respond positively.
