Investors looking at BP's upcoming third-quarter results may have reason for optimism, according to analysts at German investment bank Berenberg. The bank expects the oil giant to report a roughly $2 billion increase in operating profit compared with the previous quarter, driven by strong gas marketing and trading and an unusually robust quarter for refining. That cash boost, Berenberg says, should leave BP's balance sheet in noticeably better shape by the time it reports on October 30th.
What's driving the expected uplift?
Berenberg points to two main drivers behind the anticipated earnings jump. First, gas marketing and trading—the business of buying and selling natural gas—has been performing well, benefiting from supportive prices and market conditions. Second, refining margins have stayed high, meaning BP has been able to sell its refined products like gasoline and diesel at a healthy profit.
Together, these factors are expected to add about $2 billion to earnings before interest and taxes (EBIT) compared with the second quarter. For context, EBIT is a measure of a company's profitability that strips out interest and tax costs, giving a clearer view of how its core operations are performing.
The bank also expects BP's net debt—the total debt minus cash and equivalents—to fall to between $13.5 billion and $14.5 billion (excluding leases) by the end of the quarter. That would be a meaningful reduction from recent levels, and Berenberg estimates total liabilities could drop by $9-10 billion. Part of that decline comes from BP redeeming $1 billion of hybrid securities, which are financial instruments that sit somewhere between debt and equity on a company's balance sheet.
Why the hybrid redemption matters
Hybrid securities are a form of financing that companies often use because they can count as equity for credit-rating purposes while still paying interest like debt. But they also come with ongoing coupon payments—regular interest payments to investors—that can weigh on cash flow. By redeeming $1 billion of these hybrids, BP is simplifying its capital structure and reducing future interest costs.
Berenberg sees this as a positive signal. If BP delivers the debt and liability reduction the bank expects, it would suggest the company is repairing its balance sheet through cash generation rather than financial engineering. That distinction matters to investors because it indicates the improvement is sustainable, not just a one-off accounting move.
Lower debt and fewer hybrids can also improve how investors perceive BP's risk. A cleaner balance sheet typically means a lower risk premium, which can make it easier for the company to borrow in the future and can support its share price.
What it means for investors
For everyday investors, the key takeaway is about future cash returns. Berenberg argues that a stronger balance sheet makes BP's longer-term plans to return cash to shareholders more credible. Specifically, the bank sees a return to share buybacks in 2027 as more plausible, starting with a "moderate" $2 billion program.
Share buybacks are when a company uses its own cash to repurchase its shares from the market, which can boost the value of remaining shares and provide a return to investors. BP had paused its buyback program in recent quarters as it focused on paying down debt, so a resumption would be a notable shift.
The timing is also important. BP is scheduled to hold a strategy update in December, where management is expected to outline its plans for cash generation and shareholder returns. If Berenberg's forecast is correct, the company will enter that update with a healthier balance sheet, giving it more flexibility to commit to buybacks or other returns.
Of course, these are just projections. Actual results could differ, and oil and gas prices are notoriously volatile. But the broader point is that BP appears to be using the current supportive energy price environment to rebuild its financial strength, which could set the stage for better shareholder returns down the line.
For investors, this is a story worth watching as earnings season unfolds. The broader market has been reacting to strong earnings while keeping an eye on bond yields, and BP's results will be a key test for the energy sector. If BP beats expectations, it could also lift sentiment for other oil majors.
Berenberg's view is that BP's balance sheet is getting stronger, and that's a positive sign for anyone holding the stock or considering it. But as always, it's important to remember that analyst forecasts are not guarantees, and energy markets can change quickly.
