BP shares jumped 6% in early trading today, 7 February, as the oil and gas giant reported a record $28bn profit.
The colossal figure is more than double the $12.8bn (£10.6bn) it booked in 2021 and reflects the large spike in fossil fuel prices seen last year. The news comes less than a week after rival oil & gas giant Shell recorded $40bn (£32.2bn) in profit for last year.
Shares in BP hit 507p by mid-morning, meaning its market cap topped $93bn (£77bn).
The fossil fuel major’s top shareholder list is dominated by the leading providers of FTSE and global equities tracker funds; Blackrock, Vanguard and State Street. Norges Bank Investment Management and Mondrian Partners are also among the biggest BP holders.
“An eye watering free cash flow of over $19bn has allowed BP to bring down debt, increase its dividend and extend its buyback programme,” noted Steve Clayton, fund manager at HL Select.
“If it feels as if the major oil companies like BP, and Shell the week before, have earnings that are positively correlated to your gas bill, well that’s because they are,” he added. “We shouldn’t forget that only three years ago oil prices were on the floor and these companies were losing money getting hydrocarbons out of the ground. But few could have foreseen the scale of the swing back into profit in such a short period of time.”
Suddenly less ambitious
While the rise in share price will provide an immediate boost in assets under management for fund firms, it was not all good news.
In the update, BP revealed plans to water down earlier commitments to cut back on oil and gas production as part of its efforts to transition to renewable energy.
Three years ago, under then-CEO Bernard Looney, BP vowed to cut oil and gas production 40% by 2030 and shift to renewable energy. It has now significantly reduced its ambitions, with a 25% cut the best it can offer.
This move likely puts more political pressure on the likes of Blackrock, Vanguard, State Street and other large investment houses, as it conflicts with their stated aims of tackling climate change and sustainability challenges through their capital allocation decisions.
While the bulk of the exposure to BP comes through passive investments, the investments are nonetheless on their books.
“BP announced record profits today, news that will delight shareholders but will continue to ratchet up the political pressure on the energy giants,” said Jamie Maddock, equity research analyst at Quilter Cheviot.
“The results announced were impressively strong, even if in line with expectations, while dividends and share buybacks continue to increase, he continued. “Ultimately, like Shell, BP has benefitted hugely from the spike in gas prices and shareholders are duly being rewarded. How long that can continue in today’s environment remains to be seen.”
Maddock also noted rising political scrutiny on BP stemming from the cost of living crisis seen in the UK and many other parts of the world.
“BP has also announced that its capital expenditure to 2030 will be increased as it looks to reinvest some of these bumper profits into the business,” Maddock added. “This will be split 50-50 between new and traditional energy sources. It is also planning to moderate the runoff of its oil production compared to its previous strategy update.
“As such, with such clamour for energy sovereignty and security, and prices remaining historically elevated, in the short term the transition to renewables will be impacted as BP looks to take advantage of these trends. With an election cycle just around the corner in the UK, the issue of energy company profits is only going to become more politicised and more controversial for as long as they remain extraordinary.”
