While focusing on energy trilemma, BP more than doubles its profit

UK-headquartered energy giant BP has joined other oil and gas majors in delivering high profits in the third quarter of 2022 on a year-on-year basis, driven by increased natural gas trading and elevated energy prices.

Last week was marked by quarterly results from several energy giants, including France’s TotalEnergies, Norway’s Equinor and Aker BP,  the UK’s Shell, and their U.S. counterparts – Chevron and ExxonMobil – which posted strong financial results thanks to increased demand and output, along with higher oil and gas prices.

BP disclosed its results for the third quarter of 2022 on Tuesday, recording an underlying replacement cost profit of $8.2 billion, compared with $8.5 billion for the previous quarter and $3.3 billion in the third quarter of 2021. When compared to 2Q of 2022, this result was impacted by weaker refining margins, an average oil trading result and lower liquids realizations, partly offset by “an exceptional gas marketing and trading result” and higher gas realizations.

According to BP, the reported loss for 3Q of 2022 was $2.2 billion, compared with a profit of $9.3 billion for the second quarter of 2022 and a loss of $2.5 billion in the third quarter of 2021. The result for the third quarter includes inventory holding losses net tax of $2.2 billion and a charge for adjusting items net tax of $8.1 billion. The company outlines that this charge includes adverse fair value accounting effects of $10.1 billion, primarily due to further increases in forward gas prices compared to the end of the second quarter, partly offset by a $2 billion gain on sale relating to the formation of Azule Energy.

The oil major highlighted that its operating cash flow in the third quarter of 2022 was $8.3 billion including a working capital build of $6.2 billion, mainly due to the increase in the forward price of LNG. This is compared to the firm’s operating cash flow of $10.9 billion in 2Q of 2022 and nearly $6 billion in 3Q of 2021.

BP further elaborates that following the build in working capital as a result of rising gas prices since 2021, it expects the working capital movement to include a release of around $7 billion, weighted toward the second half of 2023 and 2024, primarily as LNG cargoes are delivered. However, the outlook for working capital remains subject to a number of factors, including price.

The company’s capital expenditure in the third quarter of 2022 was $3.2 billion, compared to a loss of $2.8 billion in the previous quarter and a loss of $2.9 billion in the third quarter of 2021. The UK-headquartered giant expects capital expenditure of around $15.5 billion in 2022 if the acquisition of Archaea Energy completes before year-end.

BP intends to execute a $2.5 billion share buyback prior to announcing its fourth-quarter results, bringing total announced share buybacks from 2022 surplus cash flow to $8.5 billion, equivalent to 60 per cent of 2022 surplus cash flow year-to-date. The firm plans to allocate the remaining 40 per cent to strengthen the balance sheet further. As underscored by BP, the net debt fell for the tenth successive quarter to reach $22 billion at the end of the third quarter.

Bernard Looney, BP’s chief executive officer, remarked: “This quarter’s results reflect us continuing to perform while transforming. We remain focused on helping to solve the energy trilemma – secure, affordable and lower carbon energy. We are providing the oil and gas the world needs today – while at the same time – investing to accelerate the energy transition. Our agreement on Archaea Energy is the most recent step in our strategic transformation of BP.”

Furthermore, BP underlines that it has continued to make progress in high-grading its portfolio through steps including the final investment decision on the Cypre project offshore Trinidad; and announcing an agreement to sell its upstream business in Algeria to Eni.

When it comes to low-carbon energy, the oil major is working to progress its renewables and hydrogen strategy as confirmed by the acquisition of a 40.5 per cent stake in Australia’s AREH, “one of the world’s largest planned renewables and green hydrogen energy hubs,” and two BP-led projects – H2Teesside and Net Zero Teesside Power – which have been shortlisted in Phase 2 of the UK government’s cluster sequencing process for support of carbon capture, use and storage (CCUS).

In the gas & low carbon energy segment, BP’s reported production for the quarter was 981 mboe/d, compared to 889 mboe/d during the same period in 2021 while the oil production was 1,317 mboe/d in the third quarter of 2022, compared to 1,313 in 3Q of 2021.

Looking ahead, BP expects the fourth quarter of 2022 upstream production on a reported basis to be slightly lower compared with the third quarter of 2022, primarily in gas regions, while the production for the full year 2022 is expected to be slightly higher compared with 2021 despite the absence of production from the firm’s Russia-incorporated joint ventures.