Shareholders benefit as the BP cash machine keeps on giving
BP saw its market value increase by almost £6 billion yesterday as it became the latest in a succession of oil companies to cash in on soaring commodity prices, with full-year profits more than doubling to record level.
Earnings for the fourth quarter of 2022 fell short of heightened expectations as oil and gas prices softened towards the end of the year, though these have been rising again in recent days amid expectations that demand from China will recover following the ruling regime’s decision to abandon its zero-covid policy at the end of last year.
Despite that blip, BP generated significantly more cash than anticipated for the full year, allowing it to as one analyst said “spray investors with cash”. Along with the surge in its market value, the group announced a 10 per cent hike in its quarterly dividend payment and a hefty $2.75bn (£2.3bn) share buyback.
Against this backdrop, the oil and gas giant angered campaigners by cutting its emissions pledge and announcing plans for greater oil and gas production than previously targeted between now and 2030.
“It’s clearer than ever after the past three years that the world wants and needs energy that is secure and affordable as well as lower carbon – all three together, what’s known as the energy trilemma,” chief executive Bernard Looney said.
“To tackle that, action is needed to accelerate the transition. And - at the same time - action is needed to make sure that the transition is orderly, so that affordable energy keeps flowing where it’s needed today. As an integrated energy company, BP is very deliberately set up to help on both counts.”
Replacement cost profit – the company’s preferred measure of profitability – came in at $4.8bn during the fourth quarter versus consensus expectations of £5bn. That took the annual tally to $27.6bn, far surpassing the $12.8bn made in 2021.
The fourth quarter dividend payment was raised to 6.6 cents per share as BP also lifted its medium-term profit guidance. Based on an assumed oil price of $70 per barrel, the group expects to generate between $46bn and $49bn of earnings by 2025, rising to between $51bn and $56bn by 2030.
“Shareholders will welcome the $2.75bn share buyback considering this was significantly larger than expected, as well as the 10% dividend increase,” said Joshua Warner, a market analyst at City Index.
“Those increased returns came after BP generated significantly more cash than anticipated, allowing it to spray investors with cash and reduce its net debt for an eleventh consecutive quarter.”
The company said it paid total taxes of $15bn on its operations throughout the world, it highest annual total. In the North Sea, which accounted for less than 10% of global profits, it will pay $2.2bn including $700m via the windfall tax known formally as the energy profits levy.
BP upped its spending plans on both renewables and oil and gas, with the increase in drilling and exploration work seen as a tacit admission that fossil fuels will remain a significant part of the mix for longer than many would like.
About 30% of its total investment last year went towards green energy transition such as its acquisition of Us-based biogas specialist Archaea Energy, as well as electric vehicle charging. That was up from 3% in 2019.
The $8bn it plans to put into cleaner energy projects between now and 2030 matches the budget for its core oil and gas business. This is expected to deliver $3bn worth of incremental earnings in 2025, with hopes that will rise to between $5bn and $6bn in 2030.
“Whilst executives have sought to deflect criticism by highlighting their importance in solving the energy crisis that erupted following Russia’s invasion of Ukraine, governments and investors alike will be keeping a close eye on how these large companies can move towards providing more secure, affordable, and lower carbon forms of energy by 2050,” said Neil Shah of Edison Group.
He added that the “extraordinary scale” of earnings will “undoubtedly” once again raise questions about how governments around the world tax oil firms.
BP shares closed yesterday’s trading in London nearly 7% higher, up 32.85p at 511.2p. That added more than £5.9bn to the group’s market capitalisation, taking it to £92.4bn.