BP signals weak Q1 2025 gas trading and $4bn debt jump despite strong refining margins

How is BP’s upstream production shaping its Q1 2025 performance outlook?

BP p.l.c. has signalled a mixed start to 2025 in its first quarter trading update, released on 11 April, with upstream production showing a varied trend across segments. The company expects its reported upstream production for Q1 2025 to be lower overall compared to Q4 2024. Within this, production in the oil production and operations segment is projected to be marginally higher. However, this is offset by a decline in output from the gas and low carbon energy division, following the impact of recent asset divestitures.

In late 2024, BP finalised the sale of upstream interests in Egypt and Trinidad, which have now weighed on the group’s gas production figures for the first quarter. These strategic exits reflect BP’s broader reshaping of its portfolio as it pivots towards lower-carbon assets. While the company did not specify the volumes affected, the move is aligned with its ambition to reduce oil and gas production by 40% by 2030 compared to 2019 levels.

What’s behind the expected weakness in gas marketing and trading?

Despite stable realised prices in its gas and low carbon energy segment, BP has warned of a notably weak trading performance for natural gas in Q1 2025. While non-Henry Hub natural gas price markers remained broadly flat quarter-on-quarter, the subdued performance of BP’s gas marketing arm reflects tighter spreads and possibly lower volatility in global gas markets.

This segment had previously been a strong profit contributor for BP during periods of market dislocation—especially in 2022 when European gas prices spiked amid supply disruptions. The recent weakness suggests a more balanced supply-demand environment in Q1 2025, with storage levels in Europe remaining comfortable through the winter. However, the company has not attributed the downturn to any specific geopolitical or operational factor.

How did oil trading and refining margins contribute to Q1 segment results?

BP’s oil production and operations segment is expected to report flat realised prices, tempered by pricing lags in key producing regions such as the Gulf of America and the United Arab Emirates. These time lags between market prices and actual realised values are a common feature in long-haul crude sales and can mute headline gains from oil market improvements.

Meanwhile, BP’s customers and products segment is forecast to benefit from stronger refining margins, with the BP Refining Marker Margin (RMM) averaging $15.2 per barrel in Q1 2025—up from $13.1 in the previous quarter. The increase in realised refining margins, expected to contribute an additional $0.1 to $0.3 billion, reflects improved economics in downstream operations, helped by lower turnaround activity.

BP’s oil trading desk, a key pillar of its integrated business model, is anticipated to deliver average results, following strong volatility-driven profits in past quarters.

What factors are influencing BP’s rising net debt in Q1 2025?

A standout development in the trading statement is BP’s expectation that net debt will increase by approximately $4 billion at the end of the first quarter, compared to Q4 2024. The increase is not attributed to operating losses or large capital outflows but rather to a temporary build in working capital.

Seasonal inventory effects, the timing of payments including employee bonuses, and cash movements linked to low carbon assets held for sale have driven this debt increase. BP has indicated that this working capital build is expected to reverse in subsequent periods, suggesting no structural deterioration in its balance sheet.

This uptick in net debt marks a temporary pause in BP’s broader deleveraging strategy, which has been in place since the post-Deepwater Horizon years. Between 2021 and 2024, BP had significantly reduced net debt from over $40 billion to below $20 billion through divestments and improved cash flow discipline.

What tax rate is BP expecting and what does it indicate about geographical profit exposure?

BP expects its underlying effective tax rate for Q1 2025 to be around 50%, notably higher than many global peers. This elevated rate reflects the geographical distribution of its profit base, with a higher share of earnings originating in jurisdictions with more aggressive fiscal regimes, particularly the UK and Norway.

Both countries have imposed windfall taxes on oil and gas producers since 2022 to capture surplus profits arising from elevated energy prices. The UK’s Energy Profits Levy, extended multiple times, continues to be a significant burden on upstream profits. The high tax rate also underscores the limited benefit from profits earned in low-tax environments like the US Gulf or Middle Eastern assets.

How do current trading conditions compare with late 2024 benchmarks?

The macroeconomic and commodity price environment in Q1 2025 shows marginal improvement over Q4 2024. Brent crude averaged $75.73 per barrel during the first quarter, up slightly from $74.73 in the previous quarter. This modest uplift reflects relative price stability, supported by continued OPEC+ output discipline and steady demand growth across Asia.

US natural gas benchmark prices under the Henry Hub index averaged $3.65/mmBtu, a significant recovery from the $2.79/mmBtu average in Q4 2024. However, this improvement in benchmark prices has not translated into stronger trading results, highlighting a decoupling between headline pricing and underlying market dynamics.

Refining conditions were comparatively more favourable, with BP’s RMM advancing from $13.1 to $15.2 per barrel, suggesting improving crack spreads and demand for refined products such as diesel and jet fuel. These gains supported downstream performance, especially as fewer refineries were offline due to maintenance during the period.

What is BP’s stock market sentiment and investment outlook?

Following the trading update, investor sentiment toward BP p.l.c. (NYSE: BP) has turned more cautious. On April 10, 2025, BP shares declined nearly 6% to close at $26.23, marking a sharp reaction to the company’s guidance on weak gas trading and a $4 billion projected rise in net debt. The stock has now fallen approximately 35% from its 52-week high of $40.40, reflecting investor concern over profitability in the current quarter and the pace of transition towards low-carbon assets.

Analyst consensus currently stands at a “Hold” rating. According to MarketBeat, the average 12-month price target for BP is $36.73, implying a potential upside of nearly 38%. TipRanks analysts place the target slightly lower at $33.78, still representing a 27% increase from the current level. These projections highlight the market’s underlying confidence in BP’s long-term strategy, even as short-term headwinds persist.

Given the current environment, the outlook for BP stock remains neutral to moderately bullish. Investors are advised to maintain a “Hold” position while monitoring the company’s Q1 earnings release on April 29, 2025. Particular attention will be paid to updated capital expenditure plans, cash flow guidance, and dividend commitments. BP’s strategic pivot toward renewables and its integrated energy model continue to offer resilience, but earnings volatility in energy trading may remain a concern through mid-2025.

What strategic signals is BP sending as it navigates Q1 challenges?

BP’s Q1 2025 trading update reflects the volatility inherent in global energy markets and the complexities of managing a diversified portfolio during an industry transition. While its gas marketing business has underperformed and debt levels are temporarily higher, the company’s refining and customer-facing segments have provided a degree of stability.

As the group moves forward, its ability to execute on divestments, maintain refining strength, and stabilise trading results will be key to sustaining investor confidence. The integrated model—spanning upstream production, energy trading, midstream logistics, and retail distribution—remains central to BP’s resilience. However, investors and analysts alike will be watching closely for execution on climate-aligned targets and a return to a deleveraging trajectory.