BP (LSE: BP.) shares could be entering a new chapter after the FTSE 100 oil giant delivered a blockbuster set of third-quarter results today (30 October).

Underlying profits surged 48% quarter on quarter to $8.5bn, while strong cash generation helped slash net debt by $8.4bn to just $13.9bn.

With BP making rapid progress on strengthening its balance sheet, could these results mark a turning point for the stock? Or is the recent surge in earnings simply a temporary windfall from elevated energy prices?

Measuring success

What particularly impresses me about BP’s results isn’t just the scale of the profits, but how management is putting the cash to work.

Underlying earnings comfortably beat analysts’ expectations of $7.3bn, helped by a favourable energy market. But rather than using this windfall to restart share buybacks, the CEO is prioritising financial strength.

BP has now achieved two of the four major financial targets set out in last year’s strategy reset, hitting its net debt and structural cost reduction goals ahead of schedule.

And progress on the remaining two looks encouraging. Adjusted free cash flow stands at around $18bn year to date, while return on average capital employed (ROACE) is running at 18%, above its 16% annual target.

Both are measured over longer periods, meaning their final achievement cannot be confirmed until 2027. However, I’m becoming increasingly optimistic they will be met.

Fixing the roof while the sun shines

For me, the most encouraging change at BP is its approach to capital allocation. During the 2022 energy windfall, the company was returning substantial sums to shareholders through buybacks while deeper problems with its performance and balance sheet remained.

This time, the priority is different. The business is directing excess cash towards settling its remaining Deepwater Horizon liabilities. At the same time, the expected $6bn proceeds from the Castrol sale should provide another boost to its finances.

That matters because today’s favourable energy market won’t last forever. The company needs a balance sheet strong enough to withstand weaker oil and gas prices without compromising its dividend or being forced to sell assets at the wrong time.

Some shareholders may be disappointed that the dividend per share has been held at 8.66¢. But rather than rewarding shareholders for a strong quarter, management is taking the opportunity to make the business more resilient. If it can maintain that discipline when conditions become less favourable, it could lay the foundations for more sustainable shareholder returns.

The bottom line

BP isn’t without risks. A resolution to the Iran conflict could ease pressure on energy supplies and push refining margins lower. A weaker global economy could also hit demand and profits.

But I think there’s more to the story than elevated energy prices. BP is strengthening its balance sheet, cutting costs and showing greater discipline in how it allocates capital. If management can sustain this progress, the shares could have further to run as the valuation gap with its peers narrows.

The turnaround is far from complete, and another quarter of strong profits won’t prove the job is done. But with earnings surging and net debt falling sharply, I think BP is worth considering for investors looking for a FTSE 100 share with further re-rating potential.

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Andrew Mackie owns shares in BP.