BP records highest profit in eight years of $12.8bn

Calls are now growing for a windfall tax on energy companies as consumers grapple with higher bills

BP has recorded a surge in profits, to the highest in almost a decade, thanks to rising oil and gas prices. Reuters

British energy company BP recorded a surge in profit to $12.8 billion in 2021 — the highest in eight years — after being boosted by rising crude and gas prices.

The strong recovery, which followed a large loss in 2020 of $5.7bn, came as the London-based oil and gas company said it plans to boost its spending on low-carbon and renewable energy.

"2021 shows BP doing what we said we would ― performing while transforming," chief executive Bernard Looney said.

BP's underlying replacement cost profit, the company's definition of net earnings, reached $4.1bn in the fourth quarter of last year, compared to the $3.32 billion in profit in the third quarter.

The quarterly results were supported by higher oil and gas prices and production which was partly offset by weaker oil trading results and the impact of higher energy costs on operations such as refining, the company said.

Natural gas and electricity prices around the world have rocketed since the middle of last year amid tight gas supplies and higher demand as economies rebounded from the pandemic, with benchmark European gas prices and Asian LNG prices hitting all-time highs in the fourth quarter.

Calls are now growing in Britain for a windfall tax on energy companies, with some MPs arguing that while households are grappling with much higher prices — with energy bills set to rise more than 50 per cent in April — the companies that extract the gas are reporting enormous profits.

Shell was in the firing line last week as it reported a hefty rise in profits on the same day as UK energy regulator Ofgem unveiled a near £700 rise in the energy price cap.

Supporters of the tax believe some of this money should be reclaimed to help struggling households cope with the increase, but Chancellor of the Exchequer Rishi Sunak has so far rejected the proposals.

"BP's results yet again demonstrate the case for a windfall tax," said Ed Miliband, shadow secretary of state for climate and net zero.

"The boss of BP described the energy price crisis as a cash machine for his company, and the people supplying the cash are the British people through rocketing energy bills.

"In these circumstances, it is only fair and right for oil and gas producers to make an additional contribution to helping the millions of families facing a true financial crisis."

BP boosted share buy-backs and followed Shell, Exxon Mobil and Chevron in pouring money back to investors after years of paltry returns.

BP will repurchase another $1.5 billion of shares using surplus 2021 cash flow before it announces first-quarter results later this year.

The results leave little doubt about the enormous gains BP has made since the start of the Covid-19 pandemic. It has paid off more than $8bn of net debt over the past year and also increased its dividend. The company also pledged to moderately increase investments, albeit from a historically low level.

Mr Looney said the company had "strengthened the balance sheet and grown returns".

"We're delivering distributions to shareholders with $4.15bn of buy-backs announced and the dividend increased, and we're investing for the future," he said.

While BP’s fortunes have completely reversed within the space of a year, thanks largely to a rapid recovery in the price of oil, Mark Crouch, analyst at social investment network eToro, does not expect this to last.

“However, conditions in the oil industry will not remain this good, with the price of oil expected to fall from more than $90 a barrel now to half that amount by 2050," Mr Crouch said.

“That’s why BP is pumping billions into low-carbon energy, with the aim of producing $9bn-$10bn of earnings from its ‘transition growth’ businesses by 2030.

“BP’s recent share price growth is down mainly to the recovery of the oil price. If it wants to maintain that buoyancy, it will have to follow through on its green pledges while remaining hugely profitable.”

BP's share price was up 1.54 per cent at 9am London time, helping the FTSE100 enjoy a positive start on Tuesday.

This year BP's capital expenditure will be between $14bn and $15bn, and remain around that range until 2025. Last year the figure was $12.8bn.

By then, BP plans to devote more than 40 per cent of its investments into energy-transition businesses. The company also said it could achieve net-zero emissions sooner than its 2050 target.