BP posts best quarterly profit in 14 years of £6.9bn as surging energy prices lead to a bonanza and 10% dividend hike
- BP reported a second-quarter underlying replacement cost profit of £6.9bn
- The group declared a 10% dividend hike and a $3.5bn share buyback scheme
- Oil and gas prices have increased as economies have started opening up again
BP has rounded off an exceptional reporting season for oil supermajors, with surging energy prices helping it achieve its highest quarterly profit since 2008.
Amidst a cost-of-living crisis magnified by the war in Ukraine, the FTSE 100 company has posted an underlying replacement cost profit – its preferred measure – of $8.5billion (£6.9billion) for the three months to June, far exceeding analyst expectations of $6.8billion.
That compares to earnings of $6.2billion in the previous three months and is more than triple the $2.8billion it earned during the same period in 2021 when Covid-19 restrictions suppressed demand for petroleum.
Earnings: BP has posted an underlying replacement cost profit – its preferred measure – of $8.5billion for the second quarter, compared to $6.2billion in the previous three months
The value of oil and gas has shot up as economies have started opening up again, providing an enormous windfall for petroleum giants like Shell, Exxon Mobil and Chevron, all of whom reported record quarterly profits last week.
Prices have also been driven higher by low inventory levels, while the cost of gas has been further exacerbated by soaring demand in Asia and a cold European winter in 2020/21 followed by a summer of low winds.
Russia’s full-scale invasion of Ukraine in late February sent prices even higher, with Brent Crude oil tipping above $100 per barrel as European countries declared their intentions to wean themselves off Russian oil.
This has led to soaring refining margins for BP, particularly in its customers and products division, which saw pre-tax profits jump to $7.2billion, compared to $3.1billion last year.
Concurrently, the company has slashed its net debts by $10billion to $22.8billion over the past 12 months while still providing hefty shareholder returns.
It has announced a 10 per cent dividend hike today of 6.006 cents per share and a share buyback programme worth $3.5billion after completing a $2.3billion scheme in the second quarter.
Trade-off: While current oil and gas prices are helping BP to score impressive results, it has come at the expense of skyrocketing energy bills for British consumers
The London-listed group expects prices to remain significantly elevated over the summer, given the massive disruption and volatility caused by the Russo-Ukrainian War to supplies.
Commenting on BP’s results, eToro analyst Mark Crouch remarked: ‘This is turning out to be an exceptional period for the sector compared with where it was a year or two ago, and investment sentiment towards oil firms has changed noticeably.
‘Despite warnings about a US and global recession, oil demand is holding up well, which is an indicator that perhaps a downturn is further off than everyone thinks.’
Yet while current oil and gas prices are helping BP to score impressive results, it has come at the expense of skyrocketing energy bills for British consumers and much higher petrol prices for drivers.
‘It’s hard to have sympathy for BP,’ Dale Vince, the founder of renewable energy company Ecotricity, told Radio 4’s Today Programme.
‘They are holding a shedload of money that is simply coming from hard-pressed billpayers in our country.’
Energy consultant Cornwall Insight has predicted that households could see their energy costs rise to £3,615 in January, putting even further financial squeeze on Britons already struggling to pay for essentials.
To try and minimise the pressure, the UK Government has introduced a £15billion cost-of-living package that includes a one-off £650 payment to over 8 million homes using Universal Credit and a doubling of the energy bills discount to £400.
Funding for this will partly come from a 25 per cent windfall tax on the ‘extraordinary’ profits of oil and gas businesses that the Treasury brought in following massive public and political pressure.
But Vince said the new levy was a ‘poorly done thing’ as it includes a loophole that allows energy companies to reduce their potential tax bills if they invest in oil and gas extraction in the UK.
BP shares closed trading 2.8 per cent up at 403.35p on Tuesday, meaning their value has climbed by more than 35 per cent in the last 12 months.