People & Money

BP rebounds with 30-fold increase in profit amid surging oil prices

Oil and gas giant BP has rebounded from the pandemic with its highest quarterly profits in eight years, following sustained market rallies on both major oil benchmarks and soaring gas demand as restrictions have eased across the world.

BP’s annual profits have risen to $12.9bn for the year, recovering from last year’s loss, boosted by fourth quarter earnings of $4.1bn.

It has also revealed cash flows of $6.1bn including a working capital build of $2.2bn, and net debt has dropped to $30.6bn at the end of the fourth quarter – a reduction of $8.3bn compared to this time last year.

BP has also received $7.6bn of divestment and other proceeds in the full year, including $2.3bn during the fourth quarter.

Chief executive Bernard Looney said: “2021 shows BP doing what we said we would – performing while transforming.”

Shares in BP have risen 2.3 per cent on the FTSE 100 after its revival in performance.

The results follow oil prices spiralling above $90 on both major benchmarks and a five-fold increase in wholesale gas prices over the course of 2021

Alongside the headline figures, BP has enhanced its share repurchase scheme and accelerated plans to cut emissions with increased spending on low carbon energy.

The fossil fuel titan has unveiled $4.2bn of planned share buybacks.

While BP has maintained its dividend at 5.46 cents per share, it has increased its share repurchases targets to $1.5bn per quarter from $1.25bn.

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Stuart Lamont, investment manager at Brewin Dolphin, was particularly reflected a strong revival in the performance of energy compnanies.

He said“BP was expected to deliver a strong set of results following last week’s update from Shell, and the company has duly delivered. Buoyed by the rising oil price, BP has swung to a substantial profit, cut debt, invested in its business, and upped its shareholder distributions. Management is striking a positive tone on its progress as BP transitions towards net zero and the company looks to be in a strong position to deliver on its commitments building up to 2030.”

The results follow growing pressure for fossil fuel companies operating in the North Sea to face a windfall tax amid spiralling household energy bills.

Rival oil giant Shell reported bumper profits of $19bn on the same day Ofgem announced a 54 per cent hike in the consumer price cap.

Labour has proposed a £1.2bn one-off levy to provide energy users with a £200 saving – with BP likely to be placed under fresh scrutiny following its impressive outperformance.

Neil Shah, director of research at Edison Group said: “Despite its impressive financial results, with energy bills forecast to rise by 50 per cent in April, BP’s success could have placed them directly in the firing line of public opinion. The group’s profit of $12.9bn for the full year are sure to escalate calls in Parliament for the implementation of a windfall tax on energy giants such as BP and Shell (who are on course to make a combined profit of £40bn this year), with the surplus cash being used to deal with the impending cost of living crisis.”

Chris Beauchamp, chief market analyst at IG Group, argued that today’s results were in line with market expectations, and anticipated more publicity around its environmental plan to shift attention away from its dividend scheme.

He said: “There isn’t much to surprise in today’s numbers, as BP goes from famine to feast thanks to the surge in oil and gas prices and the rebound in demand. We can expect more ‘greening’ talk to come, partly to deflect criticism about windfall profits and also to help lessen the impact of the big returns for shareholders that will also make it a target for politicians, hoping to escape some of the flak about a cost of living crisis.”

Last year, BP completed $1,7bn of share buybacks, this includes a $1.25bn announced with third quarter results and $475m to complete the buybacks announced with second quarter results.

The company intends to execute a further $1.5bn in share buybacks from 2021 surplus cash flow prior to announcing its first quarter 2022 results.

Based on BP’s current forecasts, it expects to deliver $4bn per annum in buybacks this year, with the capacity for an annual increase in the dividend per ordinary share of around four per cent through 2025.

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