‘Performing while transforming’ pays off for BP as it joins other oil majors in profit bonanza

UK-headquartered energy giant BP has more than doubled its annual profit in 2022, driven by increased demand and output, along with higher oil and gas prices.

Thanks to elevated energy prices, increased demand for higher oil and gas production and tight supply, energy companies recorded bumper profits in 2022. This was confirmed by Shell, Chevron and ExxonMobil, which posted all-time high profits of $39.9 billion, $35.5 billion and $55.7 billion, respectively.

BP disclosed its results for the fourth quarter of 2022 on Tuesday, recording an underlying replacement cost profit of $4.8 billion, compared with $8.2 billion for the previous quarter and $4.1 billion in the fourth quarter of 2021. When compared to 3Q of 2022, this result was impacted by a below-average gas marketing and trading result after the exceptional result in the third quarter, lower oil and gas realizations, a higher level of refinery turnaround and maintenance activity, and lower marketing margins and seasonally lower volumes.

The firm’s underlying replacement cost profit for the full-year 2022 was $27.7 billion compared to $12.8 billion in 2021 while the profit attributable to its shareholders was a loss of $2.5 billion for the full-year 2022, compared to a profit of $7.6 billion in 2021.

According to BP, the reported profit attributable to its shareholders for 4Q 2022 was $10.8 billion, compared with a loss of $2.2 billion for the third quarter of 2022 and a profit of $2.3 billion in the fourth quarter of 2021.

The result for the fourth quarter of 2022 is adjusted by inventory holding losses net of tax of $1.1 billion and a gain for adjusting items net of tax of $7.1 billion to derive the underlying replacement cost profit. Adjusting items include favourable fair value accounting effects of $13.2 billion before tax, primarily due to a decrease in forward gas prices compared to the end of the third quarter.

The oil major highlighted that its operating cash flow in the fourth quarter of 2022 was $13.6 billion including a working capital release – after adjusting for inventory holding losses, fair value accounting effects and other adjusting items – of $4.2 billion. This is compared to the firm’s operating cash flow of $8.3 billion in 3Q of 2022 and $6.1 billion in 4Q of 2021.

The company’s capital expenditure in the fourth quarter of 2022 and the full year was a loss of $7.4 billion and $16.3 billion respectively. Within this, inorganic spend was $3.5 billion in the fourth quarter and full year, including $3.0 billion for Archaea Energy, net of adjustments, and $0.5 billion for the earlier-than-expected completion of the acquisition of EDF Energy Services. By contrast, the capital expenditure in 3Q 2022 was a loss of $3.2 billion and a loss of $3.6 billion in the fourth quarter of 2021.

BP completed share buybacks of $3.2 billion during the fourth quarter of 2022. The $2.5 billion share buyback programme announced with the third quarter results was completed on 3 February 2023. In the fourth quarter, the company generated a surplus cash flow of $5.1 billion and intends to execute a $2.75 billion share buyback from surplus cash flow before announcing its results for the first quarter of 2023. The UK player announced share buybacks from surplus cash flow equivalent to 60 per cent of cumulative surplus cash flow since the start of 2021.

Murray Auchincloss, BP’s Chief financial officer, commented: “During 2022, BP delivered four quarters of robust underlying financial performance. We have raised our dividend by 21 per cent since 4Q 2021, reduced net debt by $9.2 billion, invested with discipline and announced $11.25 billion of share buybacks. As we look to 2023, we remain focused on the disciplined delivery of our financial frame, with its five priorities, underpinned by a $40/bbl balance point, unchanged.”

The company’s net debt reached $21.4 billion at the end of the fourth quarter of 2022, compared to $22 billion in 3Q 2022 and $30.6 billion in 4Q 2021. BP is committed to maintaining a strong investment grade credit rating, targeting further progress within an ‘A’ grade credit rating.

For 2023, the firm intends to allocate 40 per cent of surplus cash flow to further strengthen the balance sheet while the remaining 60 per cent of surplus cash flow is expected to be used for share buybacks. The oil major expects capital expenditure of $16-18 billion in 2023. On the other hand, BP expects capital expenditure in a range of $14-18 billion for 2024-30 including inorganic capital expenditure.

Bernard Looney, BP’s chief executive officer, remarked: “Throughout 2022, BP continued to focus on delivery of our Integrated Energy Company strategy. We are helping provide the energy the world needs today and – at the same time – investing with discipline into our transition and the energy transition – as demonstrated by the Archaea Energy acquisition.

“We are strengthening BP, with our strongest upstream plant reliability on record and our lowest production costs in 16 years, helping to generate strong returns and reducing debt for the 11th quarter in a row. Importantly, we are delivering for our shareholders – with buybacks and a growing dividend. This is exactly what we said we would do and will continue to do – performing while transforming.”

In a separate announcement, BP provided an update on the progress made in executing its transformation to an Integrated Energy Company (IEC) since outlining its new strategy. The firm claims that in resilient hydrocarbons, it has accelerated its biogas strategy – part of its bioenergy transition growth engine – completing the acquisition of Archaea Energy, a U.S. biogas company.

When it comes to low-carbon energy, the oil major has continued to make rapid progress in building its portfolio of green hydrogen projects, signing memoranda of understanding (MoUs) with both Mauritania and Egypt to explore the potential for large-scale green hydrogen developments. 

“It’s clearer than ever after the past three years that the world wants and needs energy that is secure and affordable as well as lower carbon – all three together, what’s known as the energy trilemma,” explained Looney.

Looking ahead, BP expects both reported and underlying upstream production to be broadly flat in 2023 compared with 2022. Within this, the oil major anticipates underlying production from oil operations to be slightly higher and production from gas and low-carbon energy to be lower.

The record profits that oil and gas companies made in 2022 have been criticised by NGOs and environmentalists due to the cost of living crisis and inflation. BP did not escape this either, as the oil major’s profits put the company firmly on environmentalists’ hit list.

After BP published its quarterly results, Greenpeace said: “World leaders have just set up a new fund to pay for the loss and damage caused by the climate crisis. Now they should pay up and force historically polluting companies like BP to pay into it.”

Greenpeace further added: “Pensioners are afraid to put their heating on. Young people are afraid of climate change destroying their future. In the meantime, fossil fuel giant BP made £23 billion in profit last year. It simply isn’t right.”

Previously, the environmental group claimed that oil giants like BP and Shell had been driving climate devastation for decades. Greenpeace claims that “a handful of fossil fuel companies are sitting on billions in profit, and while people struggle to heat their homes, they are pumping money into new oil despite scientists saying we need a mass switch to renewables.”

Global Witness, an international NGO, says that BP’s record 2022 profit, which represents a 116 per cent jump over 2021 profits, could pay this year’s energy bills for a full third of all UK households.

Jonathan Noronha-Gant, Global Witness, Senior Campaigner, said: “People across the country need look no further than their own front door – one of Britain’s own oil companies – which has been making records profit while so many Brits face hardship through no fault of their own. It would be good to see BP genuinely backing Britain rather than profiting off it.“

Global Witness further adds that BP’s profits could also cover £10 billion that the government claims would be needed to give NHS nurses – who today have continued their efforts on the picket lines – the pay raises they demand, and still leave the company nearly £13 billion.

“Implementing a windfall tax to aid those struggling financially, paired with a significant increase in renewable energy and home insulation, could be the start of the end to the damaging fossil fuel era, both for people and the planet. BP is richer because you’re poorer,” underlined Noronha-Gant.