BP Earns Record Profit In 2022, Slows Shift From Oil

Summary

• BP hikes dividend by 10% in a sign of confidence
• To buyback more shares
• Boosts spending on oil and gas and renewables
• BP lowers some emission reduction targets
• Expects to produce more gas and oil for longer

BP (BP.L) on February 7 posted a bumper profit of $28 billion for 2022 while boosting its dividend, but enraged climate activists by scaling back on plans to reduce oil and gas output and cut carbon emissions by 2030.

The blockbuster profit follows similar reports from rivals Shell (SHEL.L), Chevron (CVX.N), and Exxon Mobil (XOM.N) last week after energy prices soared in the wake of Russia’s invasion of Ukraine, sparking new calls to further tax the sector as households grapple to pay energy bills.

Three years after Chief Executive Bernard Looney took office with an ambitious plan to turn BP away from oil and gas towards renewables and low-carbon energy, the company said it will boost annual spending in both sectors by $1 billion with a greater focus on producing low-carbon biofuels and hydrogen.

But it rowed back plans to reduce oil output, now planning to produce 2 million barrels of oil equivalent per day by 2030, a 25% decline from 2019 levels compared with prior plans for a 40% cut.

As a result, BP scaled back its ambitions to reduce emissions from fuels sold to customers to 20-30% by 2030, from 35-40%. BP still plans to lower its total emissions to net zero by 2050.

While many investors supported Looney’s strategy, which he told Reuters “is working”, BP’s shares have significantly lagged top Western energy firms since the CEO took the helm, remaining largely flat compared with a nearly 80% gain in Exxon and a 17% jump for Shell shares.

“If the bulk of your investments remain tied to fossil fuels, and you even plan to increase those investments, you cannot claim to be aligned” with the 2015 U.N.-backed goals to fight climate change, Mark van Baal, founder of activist shareholder group Follow This said.

Rival Shell was instructed by a Dutch court in 2021 to commit to a 45% reduction in its overall emissions by 2030 from 2019 levels, a decision Shell has appealed. BP’s $4.8 billion fourth-quarter underlying replacement cost profit, its definition of net income, narrowly fell short of a $5 billion company-provided analyst forecast.

The results were affected by weaker gas trading activity after an “exceptional” third quarter, lower oil and gas prices, and higher refinery maintenance. But for the year, BP’s $27.6 billion profit surpassed its 2008 record of $26 billion despite a $25 billion writedown of its Russian assets.

That allowed it to hike its dividend by 10% to 6.61 cents per share, after halving it in the wake of the pandemic, and announce plans to buyback $2.75 billion worth of shares over the next three months after repurchasing $11.7 billion last year.

BP shares jumped 5.6% by 1220 GMT to their highest since early 2020.

BP Energy Transition

BP restated plans to divide its spending to 2030 equally between its energy transition businesses and the oil and gas business, extending the total budget to up to $18 billion from a previously guided upper range of $16 billion.

Transition businesses, such as renewables and electric vehicle charging, form about 30% of the current budget versus 3% in 2019.

BP kept its returns outlook for renewables mostly unchanged at 6%-8%, without including debt, even though global offshore wind production costs have surged in recent months.

Looney said BP’s solar and wind production will centre more on providing renewable power to produce biofuels and low-carbon hydrogen, doubling down, particularly in the U.S. where the landmark Inflation Reduction Act offers investment credits and tax cuts.

BP, whose trading operations further increase renewables returns, carried on with plans to have 50 gigawatts of renewable projects under development and 10 GW operating by 2030. It said it expects returns of more than 15% from its bioenergy business and its combined electric vehicle charging and convenience store businesses, while seeking double-digit returns on hydrogen.

It plans to translate this into a core profit from the transition businesses of $10 billion-$12 billion by 2030, out of targeted total group earnings before interest, tax, depreciation, and amortization (EBITDA) of $51 billion-$56 billion.

British Petroleum also aims to boost its focus on renewable natural gas having last year bought U.S. producer Archaea Energy for $4.1 billion, and it has also set a target to generate 0.5 million-0.7 million tonnes a year of low-carbon hydrogen to initially supply its own refineries.

BP, which raised its 2030 oil price forecast by $10 to $70 a barrel, will focus its global gas and oil operations in nine regions, with plans to sharply boost output from its U.S. shale business and in the Gulf of Mexico.