BP’s profit takes a hard hit while oil & gas keep flowing and energy transition gathers speed

UK-headquartered oil and gas giant BP has revealed solid results for the second quarter of 2023, however, this represents a 70 per cent decrease on a year-over-year basis due to the drop in oil and gas prices dealing a blow to the oil major’s profit. This did not stop the UK player from continuing to provide more energy while pursuing its transition agenda towards green and lower carbon sources of supply. This is hammered home by the offshore wind pipeline of projects jumping to almost 80 per cent while the hydrogen one rose up 60 per cent since the end of last year.

The quarterly results from U.S. and European oil majors have shown that these energy players are in the same boat with bumper profits from 2022 no longer in evidence. As a result of a global energy crisis, oil prices rose to levels not seen since 2008 during last year, especially in March 2022.

A plot twist came with a downturn in prices, which entered the energy stage in August 2022 as a consequence of market uncertainty over a looming global recession. This keeps affecting the companies’ profits, as illustrated by the slump in profits within the most recent quarterly results.

However, things are not as dire as they seem at first glance, since the energy players still did well for themselves despite the softening in the oil and gas price environment. This is demonstrated by the quarterly results posted by Chevron, (about $6 billion) ExxonMobil ($7.88 billion), Equinor ($7.54 billion), Shell ($5.07 billion), TotalEnergies ($5 billion), and Eni (around $2 billion).

For some of these oil majors, efforts undertaken to strengthen energy security and decarbonise their operations while propelling the energy transition to renewable and low-carbon energy forward seem to have paid off.

BP did not have any better luck during 2Q 2023 than the rest of the global oil majors, as its underlying replacement cost profit for the quarter was $2.6 billion, compared with $5 billion for the previous quarter and $8.5 billion in 2Q 2022. Compared to 1Q 2023, the result reflects significantly lower realized refining margins, a significantly higher level of turnaround and maintenance activity and a weak oil trading result; lower oil and gas realizations; and an exceptional gas marketing and trading result, albeit lower than the first quarter.

According to BP, the reported profit attributable to its shareholders for 2Q 2023 was $1.8 billion, compared with $8.2 billion for the first quarter of 2023 and $9.3 billion for 2Q 2022. The reported result for the second quarter is adjusted for inventory holding losses of $0.5 billion (net of tax) and a net adverse impact of adjusting items of $0.2 billion (net of tax) to derive the underlying replacement cost profit. Adjusting items include impairments of $1.2 billion and favourable fair value accounting effects of $1.1 billion.

The company’s net debt reached $23.7 billion at the end of the second quarter of 2023, compared to $21.23 billion in 1Q 2022 and $22.82 billion in 2Q 2022. The oil major’s operating cash flow in 2Q 2023 was $6.3 billion and includes $1.2 billion of Gulf of Mexico oil spill payments within a working capital release – after adjusting for inventory holding losses, fair value accounting effects and other adjusting items – of $0.1 billion. This is compared to the firm’s operating cash flow of $7.6 billion in 1Q 2023 and $10.9 billion in 2Q 2022.

The company’s capital expenditure in the second quarter of 2023 was a loss of $4.3 billion including $1.1 billion for the acquisition of TravelCenters of America, compared to a loss of $3.63 billion in 1Q 2023 and $2.84 billion in 2Q 2022. However, BP continues to expect capital expenditure – including inorganic capital expenditure – of $16-18 billion in 2023.

During the second quarter, BP completed $2.1 billion of share buybacks, including $225 million as part of the $675 million programme announced on 7 February 2023 to offset the expected full-year dilution from the vesting of awards under employee share schemes in 2023. The $1.75 billion share buyback programme announced with the first quarter results was completed on 28 July 2023. Over the last four quarters, the oil major completed over $10 billion of buybacks from surplus cash flow and reduced its issued share capital by over 9 per cent.

Bernard Looney, BP’s chief executive officer, remarked: “Another quarter of performing while transforming. Our underlying performance was resilient with good cash delivery – during a period of significant turnaround activity and weaker margins in our refining business. We’re delivering our strategy at pace – we’ve started up two major oil and gas projects to help keep energy flowing today and we’re accelerating our transformation through our five transition growth engines.

“And we’re delivering for shareholders growing our dividend and announcing a further share buyback. This reflects confidence in our performance and the outlook for cash flow, as well as continued progress reducing our share count.”

Based on BP’s current forecasts, at around $60 per barrel Brent and subject to the board’s discretion each quarter, the firm expects to be able to deliver share buybacks of around $4 billion per annum, at the lower end of its $14-18 billion capital expenditure range, and have a capacity for an annual increase in the dividend per ordinary share of around 4 per cent.

Furthermore, the oil major claims that it continued delivering resilient hydrocarbons during the second quarter of 2023 as it announced the start-up of its operated Mad Dog Phase 2 project and the Reliance-operated KG D6-MJ project, which are together expected to add thousands of boe per day of net production by 2025. In addition, BP’s Cherry Point refinery in the U.S. commissioned the hydrocracker improvement project and cooling water infrastructure project to improve availability and reduce costs and CO₂ emissions.

The UK giant highlights strong momentum in the transformation to an integrated energy company. Regarding its low-carbon energy endeavours, the oil major was awarded the rights to develop two offshore wind projects, with a total potential generating capacity of 4 GW, in the German tender round, marking its entry into offshore wind in continental Europe. Additionally, the company made significant progress in growing its pipeline of hydrogen projects to reach 2.8 mtpa at the end of the second quarter. 

Looney expressed its confidence in BP’s strategy, explaining that biofuels production is up by more than 10 per cent, renewables businesses are growing while the oil and gas business is “doing the job it’s being asked to, helping deliver energy the world needs right now.”

The company’s CEO further elaborates that 90,000 barrels of new oil and gas capacity were added in 2Q 2023 from two major project start-ups while another one at Tangguh Phase 3 is underway. The firm is also increasing its acreage in the Gulf of Mexico and growing its LNG portfolio.

“We’re staying disciplined, we’re staying the course – we’re delivering the plan. And my huge thanks to our teams for the safe delivery this quarter,” concluded Looney.

In line with the reactions received from climate activists for other oil majors’ profits, Global Witness, an international NGO, has accused BP of helping the rich get richer while the number of English households suffering from fuel poverty continues to rise after the UK player posted profits of £6 billion ($7.6 billion) for 1H 2023 and confirmed the payment of £6 billion ($7.6 billion) to shareholders, through dividend pay-outs and shareholder buybacks.

The NGO elaborates that BP’s banner profits have resulted in a 10 per cent increase in shareholder pay-outs compared to last year when the company distributed £5.4 billion in dividends and share buybacks. Global Witness claims that this stands in sharp contrast to those who rely on the energy that this oil major produces, as government estimates indicate some 3.5 million English households will suffer from fuel poverty in 2023, an 8 per cent increase over 2022.

Jonathan Noronha-Gant, Global Witness, Senior Campaigner, commented: “In 2021, BP’s CEO described his company as a ‘cash machine’ after soaring oil and gas prices boosted profits. Nearly two years on, and BP is riding the wave of the energy crisis, and handing huge sums of money to its shareholders while the UK’s poverty rates spiral.

“This is what a broken energy system looks like – oil giants get richer because the rest of us get poorer. For BP the energy crisis has been a giant cash grab; for parents across the country, it has been an impossible choice between feeding their children and paying their bills.

“The UK government needs to stop propping up this toxic industry, and urgently transition to a homegrown energy system that will bring down our bills, shore up our energy security, and help contain the devastating impacts of climate breakdown. We need an energy system that’s built for all of us, not just the privileged few.”

While commenting on BP’s results for 2Q 2023, Ed Miliband, Shadow Climate and Net Zero Secretary, Labour MP for Doncaster North, stated: “These figures show the continuing scandal of the Tory failure to act on the windfalls of war being pocketed by the oil and gas producers. Rishi Sunak must fix the loopholes in the windfall tax, not hand out billions in taxpayer subsidies.”

Upon seeing this, Cut My Tax UK, a non-government and non-profit organisation, campaigning for lower taxes and a more democratic economy, responded: “Ed as surely, you must know, BP makes a relatively small amount of its profit from oil & gas production in the UK, and the vast majority from overseas which is not taxable in the UK. Your suggestion that much more UK tax can be raised from BP is thus misleading.”