Cash keeps gushing at BP

BP is to “push on” with buying back another $1.75bn of shares despite missing profit expectations for the first quarter, says Emma Powell in The Times. It reported profits of $2.7bn in the first three months of 2024, down by nearly 50% from the same period last year, and even lower than the £2.87m analysts had expected. BP has blamed the reduced profits on the ongoing fall in gas prices of the past two years, while profits have also been hit by lower refining margins across the industry, in addition to an outage at a major US refinery.

Large dividends and buybacks mean shareholders “are unlikely to be too concerned” about the fall in profits, says AJ Bell’s Russ Mould. If it maintains this pace for the whole year, BP “will return more than 11% of its stockmarket valuation to investors, a cash yield that easily exceeds Bank of England base rates, government gilt yields and inflation”. What’s more, the fact that it is generating enough free cash flow to cover the money it is giving back to shareholders means that such returns will be “affordable”. BP will not be forced to cut back on capital investment or take on additional debt. However, environmentally focused investors may be worried by the fact that BP has flagged oil trading “as an area of strength in the first quarter”.

Indeed, many investors now expect BP “to scale back its climate targets further”, says the Financial Times. While BP currently aims to reduce oil production by 25% from 2019 levels by 2030, this is a smaller reduction than the 40% reduction originally planned. What’s more, shareholders believe that new boss Murray Auchincloss, who took over in January, “is prepared to be more flexible as demand for oil and gas continues to grow”. The fact that BP is alone among major oil companies in making such a dramatic pledge, especially at a time when oil firms are seen as “providing countries with energy security rather than being terrible companies polluting the world” would give him further cover for revising the target.