7th Feb 2023 17:08
(Alliance News) - BP PLC on Tuesday said underlying replacement profit more than doubled in 2022 and was higher in the fourth quarter, in line with increasing natural gas and oil sales from rising prices.
The London-based oil major said 2022 underlying replacement cost profit was USD27.65 billion, multiplying from USD12.82 billion in 2021, or to USD46.04 billion from USD22.34 billion before interest and tax.
This was underpinned by rising underlying pretax RC profit in gas and low carbon energy to USD16.06 billion from USD7.53 billion, and to USD20.22 billion from USD10.29 billion in oil production and operations.
Hargreaves Lansdown's Steve Clayton said what was quite extraordinary about the numbers was that despite the "intense inflationary pressures gripping the world", BP reported its lowest production costs in 16 years.
"We shouldn't forget that only three years ago oil prices were on the floor and these companies were losing money getting hydrocarbons out of the ground. But few could have foreseen the scale of the swing back into profit in such a short period of time," he said.
In the three months that ended December 31, BP's underlying pretax RC profit was up 32% to USD9.32 billion from USD7.05 billion a year earlier.
For gas and lower carbon energy, it rose 43% to USD3.15 billion from USD2.21 billion; and for oil production and operations, it was up 10% to USD4.43 billion from USD4.02 billion.
Across the full year, BP's performance soared, owing to rising natural gas and oil prices across the year.
For all of 2022, sales and other operating revenue was USD241.39 billion, up 53% from USD157.74 billion in 2021, while pretax profit ticked down to USD18.04 billion from USD18.08 billion, due to a net impairment and losses on the sale of businesses and fixed assets, as well as higher purchases and other expenses.
Richard Hunter at interactive investor said BP's "immense profits" have enabled it to withstand the "major financial cost of its Russian exit as it steps away from Rosneft, as well as deploying excess capital and at the same time actually providing an upgrade to its earnings guidance for the forthcoming year."
"The results also underline the cyclical nature of the business and in particular that when times are good, they are very good indeed," Hunter added.
Looking ahead, BP said, during the first quarter of 2023, it expects oil prices to remain supported by recovering Chinese demand and ongoing uncertainty around the level of Russian exports and low inventory levels.
This is alongside industry refining margins remaining elevated due to sanctions against Russian crude and product by the international community, in response to the war in Ukraine.
BP said global gas prices will remain dependent on weather in the northern hemisphere and the pace of Chinese demand recovery.
Steve Clayton at Hargreaves Lansdown said market forecasts suggest that BP's income will "trail away in the next few years" as the "current extraordinary market conditions fade."
"However, the company today suggests that by the end of the decade, the group could be earning [earnings before interest, tax, depreciation and amortisation] of USD51 billion to USD56 billion, with annualised growth of 12% in the next three years. Returns are seen at 18% in 2025 and through to 2030," Clayton explained.
"If BP are right, this is a pretty unprecedented period of sustained high financial returns. After all, in the last decade the group's average level of returns was closer to 3%. No surprise then to see the market welcome the results, with the stock up 3% in early trading," he continued.
BP declared a quarterly dividend of 6.61 US cents per share, up 21% from 5.46 cents, taking its 2022 total dividend to 24.082 cents, rising 11% from 21.630 cents.
"If that sounds like a big jump, remember that the company slashed its payout back in the pandemic and the new level is still 40% below where it stood in Q4 2019," said Hargreaves Lansdown's Steve Clayton.
For CMC Markets' Michael Hewson, BP's numbers were another record for oil majors and will "inevitably" attract the "usual headlines of obscene profiteering from the usual suspects".
"However," he added, "we do appear at last to be seeing the likes of BP starting to push back on the prevailing narrative by saying that new gas resources will be needed to help the energy transition."
BP announced USD8 billion worth of investment into "transition growth engines" before the end of the decade.
The oil major said its growth strategies responded to what it called the "energy trilemma": maintaining energy security, particularly in the wake of hydrocarbon price and supply volatility caused by the Russian invasion of Ukraine; maintaining energy affordability; and addressing decarbonisation concerns within the industry.
BP Chief Executive Officer Bernard Looney argued that BP's dual approach in increasing spending for lower carbon energy and hydrocarbons was necessary to both address decarbonisation concerns among investors and within the industry, while "keeping energy flowing" amid concerns of price and supply globally through continued hydrocarbon investment and growth.
Russ Mould AJ Bell said BP has clearly had time to "fine-tune its defence" in response to criticism.
"The more money companies like BP make, the stronger the calls for them to give some of it back through tax. The answer from the energy companies remains the same – yes, shareholders are getting some of the bounty via dividends, which is the normal course of business, but a lot of the profit is also being reinvested in renewable energy projects which will benefit people down the line."
BP said it paid USD1.83 billion in windfall tax in 2022, as part of the UK government's energy profits levy, a measure implemented to address rising consumer energy bills amid the cost of living crisis.
Shares in BP closed 7.0% higher at 512.00 pence on Tuesday in London.
Richard Hunter at interactive investor said that shares in the firm have dipped slightly of late given the marginal decline in the oil price, but over the last year have added 18%, as compared to a gain of 3.5% for the wider FTSE100.
"The oil majors remain an important constituent of many standard portfolios given their cash generation and high levels of shareholder returns when circumstances allow. Shell may be the marginally preferred of the UK majors, but the market consensus on BP will also likely remain positive, coming in at a buy," he said.
By Heather Rydings, Alliance News senior economics reporter
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