2nd May 2023 17:27
(Alliance News) - BP PLC was amongst the worst performers in the FTSE 100 on Tuesday, despite swinging to a profit in the first quarter as revenue ticked up and impairments were significantly reduced.
Shares in the oil major closed down 8.8% at GBP487.55 on Tuesday in London.
BP's underlying replacement cost pretax profit was USD13.23 billion in the first quarter, swinging from a loss of USD20.40 billion. Statutory pretax profit was USD12.63 billion, swinging from a USD16.90 billion loss.
This was in line with total revenue and other income rising by 11% to USD56.95 billion from USD51.22 billion, while net impairment and losses on sale of businesses and fixed assets fell away to USD88 million from USD26.03 billion.
While financial performance improved from a year before, earnings dropped from the fourth quarter of 2022.
Underlying RC pretax profit fell 31% from USD19.15 billion, statutory pretax profit fell 29% from USD17.72 billion, while revenue fell 19% from USD70.36 billion.
Victoria Scholar, head of investment at interactive investor, explained that earnings eased as, since the 2022 highs, brent crude has been steadily on the decline, shedding around 22% over the past twelve months.
A barrel of brent is currently trading at around USD76.17 at the time of the London equities close on Tuesday. Scholar said the commodity is currently weighed down by nervousness about demand amid the "sluggish" macroeconomic backdrop.
However, Scholar noted that as economies try to "wean themselves off" fossil fuels, capital expenditure into the oil and gas industry has "slowed" with investors shifting away from "heavily polluting energy" towards "low-carbon alternatives" instead.
"This could underpin prices as supply remains constrained even as demand weakens, boosting earnings for the likes of BP," she said.
Derren Nathan, head of equity research at Hargreaves Lansdown, in contrast, said that the rest of the year could still present some "challenges" for BP.
"BP continues to invest in the future of both fossil fuels but also beyond. It remains to be seen if the greener side of the business can generate the same level of returns," he warned.
BP's first quarter operations improved from a year earlier. Total upstream production was around 2.33 billion barrels of oil equivalent per day, up 3.4% annually.
Within Gas & Low Carbon Energy, total hydrocarbons production was 969 million barrels of oil equivalent per day, firming 0.3% from 966 million a year earlier, and up 1.4% from 956 million in the fourth quarter of 2022.
Within Oil Production & Operations, total hydrocarbons production was 1.36 billion barrels of oil equivalent per day, up 5.4% from 1.29 billion a year earlier, and up 3.8% from 1.31 billion in the fourth quarter of 2022.
However, BP was more downbeat about the outlook for its production, saying that it expects oil and gas production to be lower due to seasonal maintenance, as well as a squeeze on margins, especially in refining.
Michael Hewson, chief market analyst at CMC Markets, said this "cautious" outlook appeared to be what was weighing on the shares, despite BP saying it remains confident it can deliver on its target to deliver share buybacks of USD4 billion a year, based on an oil price of USD60 a barrel.
On Tuesday, BP increased its first quarter dividend by 21% to 6.61 US cents from 5.46 US cents a year earlier.
BP also announced a further share buyback of around USD1.75 billion, which it intends to execute from surplus cash flow prior to announcing its second quarter results.
During the first quarter, BP completed around USD2.2 billion in buybacks from surplus cash flow, as part of a USD2.75 billion share buyback programme announced with its fourth-quarter results.
Russ Mould, investment director at AJ Bell, said that investors seem "a bit disappointed" with BP's forward guidance for buybacks and dividends for the rest of 2023, given how first-quarter cashflow was "not quite so copious" as before due to lower fossil fuel prices and increased capital investment.
"Even so, BP's announcement also cements the oil and gas sector's position at the top of the buyback charts, as ranked by industrial sector. This will doubtless make environmental campaigners despair, but it also may also mean their pleas for further windfall taxes resonate with politicians and the wider public alike, especially if oil or gas prices start to rally again," Mould concluded.
By Heather Rydings, Alliance News senior economics reporter
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