BP's (BP) "turnaround" is gaining momentum as stronger commodity conditions, asset sales and "cost reductions" are expected to accelerate debt reduction and improve the company's balance sheet, RBC Capital Markets said in a report Friday, after hosting a session with BP Chief Financial Officer Kate Thomson.

The firm expects BP's "all-in" liabilities to fall to about $34 billion by year-end from $54 billion in Q2, helped by the expected closing of the $6 billion Castrol deal. BP could reach its reported net debt target by the end of 2026, a year earlier than previously targeted, and could be in a position to restart share buybacks by mid-2027.

RBC also raised its earnings estimates to reflect stronger "refining margins" and expects Q3 net income of about $6.5 billion on a "mark-to-market" basis, compared with consensus of $4.3 billion, the report said.

The brokerage said BP's "improved balance sheet" should support upstream growth, while Thomson and management are expected to continue cutting costs, with "structural cost savings" now anticipated to reach $5.8 billion by the end of 2027, according to the report.

RBC has an outperform rating on BP with a price target of 700 British pence, saying the company remains in the "early stages of its turnaround" and that further asset sales, efficiency gains and a greater focus on its core oil and gas business could support additional upside.

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