BP reported a sharp rebound in second-quarter earnings, helped by stronger oil and gas prices, improved refining margins and robust cash generation, as new Chief Executive Officer Meg O'Neill outlined an ambitious strategy to improve performance and restore shareholder confidence.

The energy major posted an underlying replacement cost (RC) profit of $5.7 billion for the second quarter of 2026, up 78 per cent from $3.2 billion in the previous quarter. Reported profit came in at $3.9 billion, broadly unchanged from $3.8 billion in the first quarter.

Operating cash flow surged to $10.9 billion, compared with about $2.9 billion in the previous quarter, reflecting stronger earnings despite a $1 billion working capital build. Net debt fell by $3 billion during the quarter to $22.3 billion, underscoring the company's focus on strengthening its balance sheet.

Underlying replacement cost (RC) profit is the oil industry's preferred measure of operating performance. It adjusts earnings to exclude the impact of fluctuations in the value of oil inventories—known as inventory holding gains or losses—as well as one-off items such as asset impairments and fair value accounting adjustments.

The measure provides a clearer picture of the company's underlying business performance by reflecting what it would cost to replace the oil and products sold during the period at current market prices, rather than historical purchase costs.

For the second quarter, BP's reported profit of $3.9 billion was adjusted for $700 million in inventory holding losses and $1.1 billion in net adverse adjusting items to arrive at the underlying RC profit of $5.7 billion.

Higher prices lift earnings

BP said the stronger quarterly performance was driven primarily by higher realised prices for oil and natural gas, including the impact of pricing lags, improved refining margins and stronger customer-facing businesses. These gains were partly offset by higher exploration write-offs.

The company's underlying effective tax rate increased to 34 per cent from 32 per cent in the previous quarter due to changes in the geographical mix of profits.

CEO outlines turnaround strategy

In her first quarterly results since taking over as CEO, O'Neill said the company had navigated one of the most disrupted periods in global energy markets while maintaining reliable energy supplies to customers.

"Financially, we delivered a strong quarter," she said, highlighting the significant improvement in earnings, cash flow and balance sheet strength.

However, she acknowledged BP's operational performance had fallen short of expectations. Upstream plant reliability declined to 92.4 per cent from 95.7 per cent in the previous quarter, while production and refinery throughput were lower due to planned maintenance and disruptions linked to the Middle East conflict.

"Our performance over the past few years has not met our own expectations, let alone those of our shareholders," O'Neill said. "We have not delivered consistently, we have written off too much value and our costs and liabilities are not resilient enough in a low-price environment."

Portfolio reshaping accelerates

As part of its strategic overhaul, BP continued to streamline its portfolio through a series of asset sales.

During the quarter, the company completed the sale of its Gelsenkirchen refinery in Germany, agreed to divest its retail business in Austria and announced plans to sell its UK North Sea business. BP also revealed its intention to sell Archaea, its US biogas business, as it focuses capital on higher-return assets.

The company reiterated that future investment decisions would be based on profitability, cash generation and market conditions, citing the planned sale of the Bay du Nord project as an example of its more disciplined capital allocation strategy.

Five priorities

O'Neill outlined five priorities to improve BP's long-term performance:

* Strengthen the balance sheet and further reduce debt.

* Simplify the portfolio by focusing on higher-value assets.

* Invest capital more selectively to maximise returns.

* Improve operational excellence, reliability and cost efficiency.

* Build a culture of higher performance, faster decision-making and greater accountability.

She said BP would measure success through consistent execution and stronger financial returns.

"We know what we need to do, we are taking urgent action and I am confident that this is how we will grow long-term value for shareholders," O'Neill said.  -TradeArabia News Service