BP’s second quarter profit plummeted by 70 per cent, missing forecasts, as energy prices fell from highs hit following Russia's invasion of Ukraine 18 months ago.
Profit after tax plunged to $2.6 billion in the three months to the end of June, BP said, mirroring hefty falls across the sector.
BP's underlying replacement cost profit, its definition of net income, missed expectations of $3.5 billion in a survey of analysts provided by the company.
It fell from $8.5 billion a year earlier and from $5 billion in the first quarter.
Rivals Chevron, Exxon Mobil, Shell and TotalEnergies have also all reported sharp drops in quarterly earnings due to the drop in energy prices.
But the oil giant was still able to increase its dividend by 10 per cent to 7.27 cents per share, the fourth hike since halving it in the wake of the coronavirus pandemic three years ago. It will repurchase $1.5 billion of its shares over the next three months.
“Our underlying performance was resilient with good cash delivery – during a period of significant turnaround activity and weaker margins in our refining business,” Chief Executive Bernard Looney said.
BP's shares were up by about 1.5 per cent in early trading versus a broader index of European oil and gas companies that was up 0.9 per cent.
In May, BP slowed down the pace of its quarterly buyback programme to $1.75 billion from $2.75 billion in the previous three months, prompting its largest daily share drop in more than three years.
Buyback programmes enable companies to repurchase their own stock, reducing the number of shares outstanding.
Mr Looney said the buyback programme allowed BP to reduce its share count by 9 per cent over the last four quarters.
“That means that we can raise the dividend by 10 per cent and not increase the dividend burden on the company,” he said.
The buyback and dividend increase against a backdrop of weaker earnings had one important side effect – higher debt.
Net debt rose more than $2 billion from the previous quarter to $23.7 billion, although that’s still much lower than a few years ago.
BP is sticking to its plan for capital expenditure of $16 billion to $18 billion this year. So far it has spent $7.9 billion, putting it on pace to reach the lower end of this range.
“BP’s 10 per cent dividend increase and $1.5 billion buyback tranche for the third quarter (versus $1.75 billion in the second quarter) are positive surprises that will bolster confidence in the payout for the second half”, said Will Hares, a Bloomberg Intelligence global energy analyst.
Gas trading had another “exceptional” quarter, although earnings dropped a little from the first three months of the year due to declining volatility, Mr Looney said in an interview with Bloomberg TV.
Europe’s gas market looks like it will be in a better place in the coming winter, although the region is “not out of the woods yet”, he said.
Oil demand has been “incredibly resilient” and Opec+ is sticking to its pledged production cuts, giving a strong outlook for crude prices in the coming months, Mr Looney said.
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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
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