A view of a signage outside a BP petrol station in central London, Britain, August 2, 2022. REUTERS/Henry NichollsHENRY NICHOLLS/Reuters
BP’s second quarter profit soared to US$8.45-billion, its highest in 14 years, as strong refining margins and trading prompted it to boost its dividend and spending on new oil and gas production.
The strong performance caps a blowout quarter for the top Western oil and gas companies on the back of soaring energy prices that have increased pressure on governments to impose new taxes on the sector to help consumers.
“The company is running well and it continues to strengthen. We have real strategic momentum,” chief executive officer Bernard Looney told Reuters.
BP shares were up 4.3 per cent by 1315 GMT, hitting their highest levels since June and strongly outperforming the European energy index which was up 0.7 per cent. BP shares have gained 23 per cent this year but are still some 10 per cent below prepandemic levels.
Mr. Looney, who took office in 2020 with a vow to rapidly shift BP away from fossil fuels to renewables, said that the company will increase its spending on new oil and gas by US$500-million in response to the global supply crunch.
“We will direct more investment towards hydrocarbons to help with energy security in the near term,” Mr. Looney said. “We’ll probably direct about a half a billion dollars for hydrocarbons.”
BP plans to maintain its overall capital expenditure this year in a range of US$14-billion to US$15-billion.
BP increased its dividend by 10 per cent to 6.006 US cents per share, more than its previous guidance of a 4-per-cent annual increase. It halved its dividend to 5.25 US cents in July, 2020, for the first time in a decade in the wake of the pandemic.
The company also increased its share repurchases plan for the current quarter to US$3.5-billion after it bought US$4.1-billion in the first half of the year.
“The fact it produced its highest quarterly profit in 14 years, even though oil prices were higher during that period than they are now, suggests BP is a more efficient machine than it was previously,” AJ Bell investment director Russ Mould said.
The company said it expected crude oil and gas prices as well as refining margins to remain “elevated” in the third quarter and said it would stick to its target of using 60 per cent of its surplus cash on share buybacks.
The surge in revenue also allowed BP to sharply reduce its debt to US$22.8-billion from US$27.5-billion at the end of March.
BP brings the second quarter profit tally for the top Western oil and gas companies to US$59-billion after rivals including Exxon Mobil and Shell reported record earnings last week.
Its underlying replacement cost profit, its definition of net earnings, reached US$8.45-billion in the second quarter, the highest since 2008 and far exceeding analysts’ expectations of US$6.8-billion.
That was up from US$6.25-billion in the first quarter and US$2.8-billion a year earlier.
The strong performance was driven by strong refining margins, “exceptional” oil trading performance as well as higher fuel prices, although gas trading was weaker, BP said.
An outage at a major U.S. Gulf Coast liquefied natural gas (LNG) plant also weighed on profits.
The Freeport LNG plant supplies BP with four million tonnes per year of LNG, out of a total portfolio of 18 million tonnes.
BP is looking at ways to supply customers despite the lost supply though that will come at an elevated cost, chief financial officer Murray Auchincloss told Reuters.
The company has allocated money to cover for the extra costs of LNG supply as a result of the Freeport outage, he said.
Jefferies analysts estimated those extra costs this quarter would total US$700-million to US$900-million.
Be smart with your money. Get the latest investing insights delivered right to your inbox three times a week, with the Globe Investor newsletter. Sign up today.