BP posts best 14-year quarterly profit of £6.9bn as rising energy prices lead to bonanza and 10% dividend hike
- BP reported a profit on underlying replacement costs of £6.9 billion in the second quarter
- The group announced a 10% dividend increase and a $3.5 billion share repurchase program
- Oil and gas prices have risen as economies reopen
BP has completed an exceptional reporting season for oil supermajors, with rising energy prices helping it achieve its highest quarterly profit since 2008.
Amid a cost of living crisis exacerbated by the war in Ukraine, the FTSE 100 company has posted an underlying replacement cost profit – the preferred measure – of $8.5 billion ( £6.9 billion) for the three months to June, well ahead of analyst expectations of $6.8 billion.
That compares to a $6.2 billion profit in the previous three months and more than three times the $2.8 billion it earned in the same period in 2021 when Covid-19 restrictions suppressed oil demand.
Earnings: BP posted an underlying profit on replacement costs – the preferred measure – of $8.5 billion for the second quarter, compared to $6.2 billion in the previous three months
Oil and gas values have skyrocketed as economies reopened, which has been a huge windfall for petroleum giants like Shell, Exxon Mobil and Chevron, all of which reported record quarterly profits last week.
Prices have also risen due to low inventory levels, while gas costs have been further exacerbated by rising demand in Asia and a cold European winter in 2020/21 followed by a low wind summer.
Russia’s large-scale invasion of Ukraine in late February pushed prices even higher, with Brent crude falling above $100 a barrel as European countries announced their intention to get rid of Russian oil.
This has led to rising refining margins for BP, particularly in its customer and products division, which saw pre-tax profits rise to $7.2 billion, compared to $3.1 billion last year.
At the same time, the company has reduced its net debt by $10 billion to $22.8 billion in the past 12 months, while still delivering strong shareholder returns.
It today announced a 10 percent dividend increase to 6,006 cents per share and a $3.5 billion share repurchase program following completion of a $2.3 billion plan in the second quarter.
Trade-off: While current oil and gas prices are helping BP deliver impressive results, it has come at the cost of skyrocketing energy bills for UK consumers
The London-based group expects prices to remain significantly elevated over the summer, given the massive disruption and volatility caused by the Russo-Ukrainian supply war.
Commenting on BP’s results, eToro analyst Mark Crouch noted: “This is proving to be an exceptional period for the industry compared to a year or two ago, and investment sentiment towards oil companies has changed noticeably.
“Despite warnings of recession in the US and the world, oil demand is holding up well, indicating that a downturn may be further away than everyone thinks.”
But while current oil and gas prices are helping BP achieve impressive results, it has come at the cost of skyrocketing energy bills for UK consumers and much higher petrol prices for drivers.
“It’s hard to sympathize with BP,” Dale Vince, the founder of renewable energy company Ecotricity, told Radio 4’s Today program.
“They have a lot of money in their hands that simply comes from heavily pressured bill payers in our country.”
Energy consultant Cornwall Insight has predicted that households could see their energy costs rise to £3,615 in January, putting further financial difficulties for Britons already struggling to pay for essentials.
To try and minimize the pressure, the UK government has introduced a £15 billion cost of living package, including a one-off payment of £650 to more than 8 million households with Universal Credit and a doubling of the discount on the utility bill up to £400.
Funding for this will come in part from a 25 percent windfall tax on the “extraordinary” profits of oil and gas companies that the Treasury brought in under massive public and political pressure.
But Vince said the new levy was a ‘done thing badly’ as it contains a loophole that would allow energy companies to cut their potential tax bills if they invest in oil and gas exploration in the UK.
BP shares closed 2.8 percent higher at 403.35p on Tuesday, meaning their value is up more than 35 percent in the past 12 months.