BP has raked in massive underlying profits across its oil and gas operations over the first three months of 2022 amid soaring energy prices, recording earnings of $6.2bn (£4.9bn) compared to $2.6bn in the same period last year.
This is the energy giant’s strongest underlying profits performance since 2008, and exceeds analysts expectations of earnings around $4.5bn.
The firm argued the “exceptional” performance in its fossil fuel trading division had driven its strong performance, with chief financial officer Murray Auchincloss revealing volatility in oil and gas prices was the most company had ever seen.
BP further announced it would increase its quarterly share repurchases to $2.5bn before the end of the second quarter, after surplus cash flows rose to more than $4bn.
This follows BP revealing February it would accelerate its share buybacks to $1.5bn per quarter from $1.25bn.
The company has also maintained its dividend at a robust 5.46 cents per share.
Despite the strong underlying performance, BP recorded an eye-watering $20.4bn (£16.3bn) loss on its balance, following its decision to ditch its 19.75 per cent stake in Rosneft.
BP joined rivals Shell and Equinor in abandoning its operations in Russia after the country’s invasion of Ukraine.
The group’s chief executive Bernard Looney and predecessor Bob Dudley have also resigned from their positions on Rosneft’s board.
Shares in the energy giant climbed 2.95 per cent on the FTSE 100 following the results.
Edward Moya, senior market analyst at OANDA told City A.M.: “BP shares are rallying after a strong earnings report that also included a successful exit from Russia. BP had an impressive trading quarter and will likely see strong earnings going forward as both oil and gas prices remain well supported. The playbook for the oil giants this earnings season is to deliver strong earnings results with improving operation statistics and boosting share buybacks.”
Prime Minister rules out windfall tax despite bumper profits
BP’s impressive results come ahead of Shell’s quarterly update later this week, with the Labour Party (Labour) reigniting calls for a windfall tax on the North Sea oil and gas industry.
However, Prime Minister Boris Johnson remains opposed to further levies.
He told ITV’s Good Morning Britain: “If you put a windfall tax on the energy companies, what that means is that you discourage them from making the investments that we want to see that will, in the end, keep energy price prices lower for everybody.”
The opposition favours a one-off £1,2bn levy on the profits of energy companies operating in the region as part of plans to shave off £600 per year from the energy bills of low-income households.
Labour’s Shadow Climate Change and Net Zero Secretary Ed Miliband said: “The oil and gas firms may be doing their job for the shareholders of their companies but the government is negligently failing to do its job for the people of this country.”
“The refusal to levy a windfall tax to help cut energy bills is deeply wrong, unfair, and tells you all you need to know about whose side this government is on – and it’s not the British people.”
This was later echoed by opposition leader Keir Starmer.
Speaking to BBC Breakfast, he said: “I think those figures reinforce the case that we’ve been making, which is that, with so many people struggling to pay their energy bills, we should have a windfall tax on oil and gas companies in the North Sea who have made more profit than they were expecting.
The clamour for a windfall tax comes amid a deepening cost of living crisis, with energy prices spiking a painful 54 per cent last month to nearly £2,000 per year amid market carnage that has seen 29 suppliers exit the industry since last September.
Energy specialists Cornwall Insight forecast last month that prices could rise again to £2,600 in October – amid growing pressure for the Chancellor Rishi Sunak to expand his support for energy consumers beyond the £9bn rebate scheme announced in February.
BP backs Britain as it makes plans for energy transition
BP has committed to spending £18bn on the UK energy sector by the end of the decade, with a focus on low carbon and zero carbon projects alongside North Sea oil and gas exploration.
In a further attempt to head off criticism, BP also stressed it expects to pay up to £1bn in taxes for its 2022 North Sea profits, on top of around £250m paid annually in other UK taxes.
Looney insisted the group is “backing Britain”.
He explained: “It’s been our home for over 110 years, and we’ve been investing in North Sea oil and gas for more than 50 years. We’re fully committed to the UK’s energy transition – providing reliable home-grown energy and, at the same time, focusing on the drive to net zero.”
When pressed about the possibility of a windfall tax, he also revealed there were projects “we wouldn’t do” if levies were imposed on the company.
The cabinet is split on the prospect of bringing in further levies on energy giants such as BP and Shell.
Sunak has publicly urged the energy giants to ensure they follow through on their spending plans, while Kwarteng has written to both BP and Shell warning them to meet their funding pledges.
However, while Sunak is reportedly open to the prospect of further levies, Kwarteng has consistently opposed a windfall tax, fearful it will deter investment.
North Sea oil and gas exploration is a key tenet of the UK’s recently published security supply strategy alongside ramping up renewable projects, as the government seeks to reduce its dependence on Russian hydrocarbons and overseas energy.
Andy Mayer, energy analyst at the Institute of Economic Affairs (IEA) criticised calls for new taxes on the North Sea oil and gas sector.
He noted there is a 40 per cent special corporation tax on the North Sea, 21 percentage points above the 19 per cent corporation tax paid by everyone else.
The Office for Budgetary Responsibility has predicted it will raise £21bn between 2021-25, averaging £4-5bn a year – a 740 per cent increase on returns between 2015-20.
He told City A.M.: “Politicians calling for new windfall taxes on the North Sea mislead the public by ignoring the windfall tax that already exists and the damage done to investment and taxes by previous efforts to raise it.”
“The last time the rate was that high, from 2006-16, it caused a collapse in investment; from £16bn to £4bn a year by 2020. It yielded negative taxes for two years. The government had to cut the rate and offer allowances to entice companies back.”
“Raising £1.2bn as an election stunt will further put £43bn of pledged investment at risk. This is ‘golden goose’ politics. Every time the North Sea lays an egg, politicians try to kill it with higher taxes, and hide the egg.”
However, Russ Mould, senior investment analyst at AJ Bell, argued the strong first quarter from BP will only fuel talk of more measures to contain the cost of living crisis.
He told City A.M. “What feels like an achievement worth celebrating almost needs an apology by BP – and there may almost be an element of regret on its part that the numbers are so far ahead of forecasts.”
“The argument for the windfall tax goes something like this – BP’s profit and cash flow is being artificially inflated by the war in Ukraine and ordinary people are already paying the price through much higher household bills. Shouldn’t BP, with its broader shoulders, share the burden? Particularly given it feels able to boost shareholder returns with an enhanced share buyback programme.”
Mould also suggested that despite its enviromental pledges, the results reflected its reliance on oil and gas to boost its performance.
He concluded: “BP has ambitious plans to become cleaner and greener but today’s update is a reminder that fossil fuels, with all the environmental and geopolitical mess they entail, remain central to the company for now.”