2nd Aug 2022 13:34
(Alliance News) - The massive jump in oil prices following the end of the Covid-19 pandemic and Russia's invasion of Ukraine has brought both a painful rise in costs for energy consumers and a welcome dividend windfall for equity investors.
With London's two oil majors - BP PLC and Shell PLC - sitting at the core of most UK pension funds, these are often the same people. But clearly not always, and that - together with the need to invest in combating climate - has provoked sharp criticism of the inflated profits and returns.
BP on Tuesday announced a 10% dividend hike and plans for a new USD3.5 billion share buyback, having just complete one worth USD2.5 billion. Shell last week lifted its own interim dividend by 21% and launched a USD6 billion buyback.
In announcing its decision on returns on Tuesday, BP noted that net debt was reduced to USD22.82 billion at the end of June from USD32.71 billion a year before.
Replacement cost profit - BP's preferred metric - more than trebled to USD7.65 billion in the second quarter of 2022 from USD2.38 billion a year earlier. On an underlying basis, RC profit was USD8.45 billion, up from USD2.80 billion. Pretax profit surged to USD14.06 billion from USD5.14 billion.
Second-quarter revenue jumped 85% to USD69.51 billion from USD37.60 billion.
London broker SP Angel noted that the five oil majors - Exxon Mobil Corp, Chevron Corp, TotalEnergies SE, BP and Shell - collectively have announced USD59 billion in second-quarter profit, almost doubled on a year before, and have returned 45% of this to shareholders.
BP swung to a first half loss, however. It posted a replacement cost loss of USD15.40 billion, swinging from a profit of USD5.71 billion a year earlier. Profit was wiped out by a first quarter USD24.4 billion post-tax charge related to BP's exit from its near 20% stake in Russian business Rosneft, following the invasion of Ukraine.
BP lifted its quarterly dividend by 10% to 6.006 cents per share from 5.460 cents a year prior. The first-half payout is up 7.1% to 11.466 cents.
BP executed USD2.3 billion worth of buybacks in the second quarter before completing the remainder of a USD2.5 billion programme in late July. What's more, BP plans to complete a USD3.5 billion buyback before announcing third-quarter results, which are scheduled for November 1.
"On average, based on BP's current forecasts, at around USD60 per barrel Brent and subject to the board's discretion each quarter, BP continues to expect to be able to deliver share buybacks of around USD4.0 billion per annum and have capacity for an annual increase in the dividend per ordinary share of around 4% through 2025," the London-based company said.
Brent traded at USD100.35 a barrel early Tuesday afternoon, down from USD100.70 late Monday.
Looking ahead, BP said it expects oil prices to remain high in the third quarter due to continued disruption to Russian energy supply.
"Despite today's elevated oil and gas pricing environment, our experts don't expect BP to alter its investment plans in the next 12 to 18 months," commented Allegra Dawes at research house Third Bridge. "Should they decide to accelerate spending there will face significant challenges, especially for large-scale projects.
"Investors expect more share repurchases and dividends from BP and other oil supermajors thanks to record-breaking profit and cash flow levels."
Stuart Lamont, an investment manager at Brewin Dolphin, warned that this largess could provoke a political backlash. "BP's and its peers' results are...likely to attract further political attention, which is becoming a real risk for the future," he said.
Harriet Lamb, chief executive officer of climate change charity Ashden, said: "BP is the latest in a run of oil super majors declaring unthinkable bonanza profits.
"These profits are unsound, unethical and economically disastrous for the country as a whole. They underline why our dependence on fossil fuel giants must be ended. They are benefiting from record-breaking profits while ordinary people face record-breaking and life-destroying energy bills."
AJ Bell Investment Director Russ Mould commented: "The debate over the rights and wrongs of BP's bumper profits will run and run but, from the narrow perspective of investment, the oil major's latest share buyback means FTSE 100 members are on track to return record amounts of cash to their shareholders in 2022.
"A forecast aggregate dividend pay-out of GBP85 billion almost matches 2018's peak of GBP85.2 billion and share buybacks are now firmly on track to set a new record, with GBP46.9 billion already announced or implemented for this year. That breezes past the prior peak of GBP34.9 billion, also set in 2018."
Matt Britzman, an equity analyst at Hargreaves Lansdown, said that, such has been the recent boost to profit, BP's payouts haven't been at the expense of investment in green energy.
"BP's still pumping cash into building out it's renewables offering in a bid to capture a large slice of the growing low carbon and energy transition markets. Building out EV charging stations, offshore wind farms and taking stakes in hydrogen projects are all part of the plan," he said.
"It's a bigger move than peers have made, which adds some extra risk, but nonetheless is one that's certainly commendable."
Shares in BP were up 4.0% at 407.90 pence in London on Tuesday afternoon. The stock is up 41% over the past 12 months. Shell was up 1.5% in a positive read-across.
By Tom Waite; [email protected]
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