BP’s latest financial results show mixed results. Despite beating forecasts, shares have dropped from their 8-month highs. Shareholder profits increased to $1.16 billion from $206 million compared to last year, but they are lower than the previous quarter. Year-to-date profits rose to $3.5 billion, indicating progress for BP. Underlying profits remained stable, slightly exceeding expectations, and capital spending is expected to fall by over $2 billion in 2025. Cash flow was better than predicted, but net divestments in Q2 were just $28 million. BP aims to sell $20 billion in assets by 2027. The share buyback stayed at $750 million, even as net debt increased to over $26 billion from $24.3 billion last year, raising the gearing to 25.1%. While there are some operational improvements, their long-term sustainability is uncertain. Suspending the buyback may hurt BP in the short run but could help reduce net debt and stabilize its balance sheet over time. To achieve a net debt target of $14 billion to $18 billion by 2027, BP needs to make bold management decisions about future cash flow and assets. The market has responded cautiously to BP’s results, leaving questions about future transitions. Despite the profit exceeding forecasts, the market’s reaction has been lukewarm, with the stock retreating from recent highs. This suggests that positive news, supported by WTI crude prices staying above $80 for most of the year, might already be priced in. Derivative traders should see this as a potential ceiling for the stock in the near term. A major concern is the rising net debt, now over $26 billion, which is moving in the wrong direction compared to last year. Continuing the $750 million buyback while gearing rises to 25.1% raises questions and adds pressure to the balance sheet. For context, BP’s gearing has now surpassed some of its European competitors for the first time since the energy price spike of 2022. Given the underlying weaknesses in the balance sheet, we believe there is an opportunity in the options market. The current calm reaction might mean implied volatility on BP options is relatively low, making puts an attractive option for those positioning for potential downside. A suspension of the buyback or a disappointing divestment update could trigger the market to reassess the stock. Looking forward, BP’s plan to divest $20 billion in assets by 2027 appears ambitious, especially since the market knows BP is eager to sell. Historical trends from the 2014–2016 oil price drop show that forced divestments often occur at discounted valuations. Any challenges in meeting these targets could hinder BP’s ability to reach its net debt goal of $14 billion to $18 billion and may further pressure the share price in the upcoming quarters.

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