The BP logo at a gas station in London, on Nov. 1, 2022.Kin Cheung/The Associated Press
BP’s BP-N second-quarter profit slumped 70 per cent from a year earlier to $2.6-billion, missing forecasts, as refining margins and oil trading income fell, but still allowing the energy giant to boost its dividend by 10 per cent.
Rivals Chevron CVX-N, Exxon Mobil XOM-N, Shell SHEL-N and TotalEnergies TTE-N have also reported sharp drops in quarterly earnings, hurt by a drop in energy prices from highs hit following Russia’s invasion of Ukraine a year and a half ago.
“Our underlying performance was resilient with good cash delivery – during a period of significant turnaround activity and weaker margins in our refining business,” Chief Executive Officer Bernard Looney said in a statement.
BP’s underlying replacement cost profit, its definition of net income, missed expectations of $3.5-billion in a company-provided survey of analysts.
It fell from $8.5-billion a year earlier and from $5-billion in the first quarter.
BP increased its dividend by 10 per cent to 7.27 cents per share, the fourth hike since halving it in the wake of the coronavirus pandemic three years ago. It will repurchase $1.5-billion of its shares over the next three months.
In May, BP slowed down the pace of its quarterly buyback program to $1.75-billion from $2.75-billion in the previous three months, prompting its largest daily share drop in more than three years.
Looney told Reuters that the buyback program allowed BP to reduce its share count by 9 per cent over the last 4 quarters. “That means that we can raise the dividend by 10 per cent and not increase the dividend burden on the company,” he said.
BP’s shares were up around 1.5 per cent by 0935 GMT versus a broader index of European oil and gas companies up 0.44 per cent.
BP said the weaker results reflected a significant decline in refining margins, a higher level of maintenance activity and weaker trading results compared with the previous quarter.
It said gas trading results were “exceptional” but lower than in the first quarter.
BP’s net cash flow was negative in the quarter at $269-million, meaning it had to borrow to meet its spending, compared with a surplus of $2.3-billion in the first quarter.
BP’s gearing, or debt-to-capital ratio, stood at 21.7 per cent in the second quarter, compared with 19.6 per cent in the first quarter and 21.9 per cent a year earlier.
RBC analyst Biraj Borkhataria said that “given BP has higher leverage than all of its Super-Major peers, more fundamentally, we would have preferred to see the company focus on net debt reduction, with a dividend increase deferred to later in the year.”
For the third quarter, BP expects oil prices to be supported by OPEC supply cuts alongside above-historical-average refining margins helped by lower inventories and U.S. demand.
BP expects the European gas and Asian liquefied natural gas (LNG) markets to be “at risk” from a swift filling of European gas storage sites ahead of winter.
In February, Looney scaled back plans to cut oil output, with BP now aiming to produce 2 million barrels of oil equivalent per day by 2030, down just 25 per cent from 2019 levels compared with previous plans for a 40 per cent cut.
The company still aims to sharply expand its renewables and low-carbon business by the end of the decade.
Low-carbon businesses including biofuels, electric vehicle charging, hydrogen and renewables account for a fraction of BP’s earnings.
Last month, BP won the rights to develop two large offshore wind projects in Germany, agreeing to pay €678-million upfront, equivalent to 10 per cent of the bid amount.