As Labour ramps up calls for a tougher windfall tax, it would be easy to miss that BP’s shares are down five per cent on the FTSE 100 this morning.
Seemingly, investors are disappointed over slashed share buybacks, and are pricing in leaner days ahead as oil and gas markets show signs of calming.
The energy giant’s £3.9bn quarterly earnings may have surpassed analyst expectations, but this is a significant drop on the £5bn bumper profits posted 12 months ago
At current trajectories, BP will fall some way short of the £23bn monster takings it made last year.
The fossil fuel trader has also slashed the scale of its buy back scheme from £2.2bn to £1.4bn over the next quarter – which BP attributed to the impact of lower oil and gas prices on cash flows.
Alongside its headline profits, BP revealed it had coughed up £520m in UK taxes this quarter, including £240m on the windfall tax.
Nevertheless, Labour is still pushing for investment relief to be scrapped and for the windfall tax to expanded to fund a council tax freeze .
Shadow climate secretary Ed Miliband called BP’s earnings “the unearned profits of war” – however, it’s not clear this is the case any longer.
Oil climbed to a 14-year high of $139 per barrel following Russia’s invasion of Ukraine last March, and remained above the $100 milestone until autumn – a threshold it hadn’t previously breached for eight years.
Since then, has been weighed down by gloomy economic data, uncertainty over Chinese consumption and easing supply shortage concerns in the warmer summer months.
Meanwhile, gas peaked at a record £8 per therm last year on UK benchmarks in August last year, but has since eased to 88p per therm.
This is still double pre-crisis trading levels, but it is a near tenfold drop off from the peaks last year which powered fossil fuel majors to monster profits.
BP still expects oil prices to rise again later this year – driven by revived Chinese demand in the autumn alongside supply shortages powered by OPEC+’s swingeing cuts of 3m-plus barrels per day.
It also expected that the restocking of European gas storage – chiefly with LNG – would keep gas prices high.
However, none of this is certain, with both major oil benchmarks now operating at around $75 per barrel.
If windfall taxes are only supposed to exist in windfall conditions – it is increasingly questionable how applicable the Energy Profit Levy should be over the coming years.
BP has attributed its sustained multibillion pound earnings to “exceptional” and “very strong” performances from its gas and oil trading teams.
This included new production deals, and well executed time-trades for oil being bought and sold over different time periods.
Meanwhile, Chevron’s bumper £5.27bn earnings were powered by its refining business, while Exxon Mobil is reaping the benefit of long-term production investment to drive its £9.17bn profits.
This suggests BP’s performance is now increasingly in its own hands – with the energy giant relying on its own decision making to drive profits as fossil fuel prices wane.