FTSE 100: BP to buy back shares as profits soar to $8.2bn

File photo dated 31/07/22 of the logo of BP. The company has revealed second-quarter profits more than trebled to a 14-year high as it joined rival Shell in reaping the benefits of soaring oil and gas prices. The oil giant reported underlying replacement cost profits - its preferred measure - jumping to a far better-than-expected 8.5 billion US dollars (�6.9 billion) for the three months to June 30, up from 2.8 billion US dollars (�2.3 billion) a year ago. Issue date: Tuesday August 2, 2022.
BP doubles profit to $8.2bn amid rising calls to tax the sector. Photo: PA

BP’s (BP.L) profits more than doubled in the third quarter to $8.2bn (£7.1bn) driven by record high energy prices, as it expanded its share buybacks by $2.5bn.

The FTSE-listed company reported that underlying replacement cost profits – a measure preferred by BP – surged to $8.2bn for the quarter to September, compared with $3.3bn a year earlier.

Much like rival Shell (SHEL.L), BP’s trading was driven by “exceptional” gas marketing and trading, even as oil prices eased.

BP will continue to push cash to shareholders, by announcing a fresh $2.5bn share buyback, on top of a dividend worth 6p per share.

As the energy company is on course for one of the most profitable years in its history, calls for larger windfall taxes on the bumper profits earned by oil and gas companies are set to be reignited.

US President Joe Biden on Monday called on major oil companies who are bringing in big profits to stop "war profiteering", threatening to hit them with higher taxes if they don't increase production.

The world’s largest oil and gas majors have reported bumper earnings in recent months, benefitting from surging commodity prices following Russia’s invasion of Ukraine.

Read more: FTSE 100: Shell raises dividend as profits double to $9.5bn amid energy crisis

“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,” Bernard Looney, chief executive of BP, said.

“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,” he added.

BP shares have risen more than 45% this year.

Richard Hunter, head of markets at Interactive Investor, said: "BP has declared a further share buyback programme of $2.5bn, bringing the cumulative figure for the year to $8.5bn. the amount is comfortably within BP’s own guidelines and accompanies the increased dividend payment, where a projected yield of 4.4% is an additional bonus to shareholders who are currently riding the wave.

"Of course, the oil price has been a major factor in enabling this largesse. Despite a recent dip relating to demand concerns in the event of a global recession, the OPEC+ production cut decision has worked in its favour and the price of oil remains up by 21% in the year to date. The current level of Brent at around $94 per barrel compares to what BP describes as its “cash balance point” of $40.

"The demand/supply imbalance also continues in energy prices generally following the Russian invasion of Ukraine, while the longer term requirement for fossil fuels remains intact, even though the oil majors are investing substantially to drive the use of renewable energy forward. What is likely to be a multi-decade transition is still in its relatively early stages, with the viability and reliability of many renewables as yet unproven. In the meantime, the requirement for traditional fossil fuels remains entrenched, with BP and its peers looking to manage the transformation to the new world carefully, and helped by the tailwind of higher energy prices."

BP confirmed that it will pay UK windfall taxes this year. It told shareholders it will pay out $2.5bn in taxes for its UK North Sea business in 2022, as well as $800m of tax related to the energy profits levy.

This contrasts with rival Shell, however, which paid no windfall tax whatsoever in the third quarter despite posting a doubling in profit.

Read more: Shell and BP windfall tax on share buyback profits could raise $4.8bn

That was because the oil company used its investments in the UK to offset the levy.

The government is under pressure to expand the levy in the autumn statement later this month, given a big black hole in the public finances.

George Dibb, head of the Centre for Economic Justice at the Institute for Public Policy Research (IPPR), said: “Companies like BP are making huge profits and channelling these straight back to already-wealthy shareholders through share buyback schemes. Instead of reducing costs for consumers or investing in renewable energy, these fossil fuel giants are prioritising transfers to shareholders. BP has announced a new buyback programme today of $2.5bn, totalling $8.5bn this year alone.

“There is an alternative. The US have recently levied a tax on share buybacks and the UK should follow suit. A 25% windfall tax on the share buybacks of BP and Shell would raise up to £4.8bn per year for the treasury. Taxes which could be spent on supporting households across the UK.”

Philip Evans, oil and gas campaigner for Greenpeace UK, commented: "Another week, another £7.1bn banked by BP in profits, with billions to be paid out to investors. Meanwhile the homes of the poorest households in the UK urgently need insulation, the growing numbers in fuel poverty need financial support, and further investment in cheap renewables could lower our bills permanently.

"As chancellor, [Rishi] Sunak imposed a windfall tax on these companies but gave them a loophole so big it turned into a huge tax break for more oil and gas. That won’t address the cost of living crisis, won’t provide energy security and will only make the climate emergency worse. An appropriate level of tax on BP and the other oil majors could contribute to the costs of the energy crisis and adapting to climate impacts, the investment in solutions necessary to avoid the more devastating impacts yet to come, and the loss and damage that the most vulnerable communities in the Global South have already experienced."

Watch: BP quarterly profits come in at £7.1bn after oil and gas prices surge