BP profit plummets more than two thirds after drop in energy prices

Earnings after tax plunge to $2.6 billion in the three months to the end of June

BP is sticking to its plan for capital expenditure of $16 billion to $18 billion this year. Bloomberg

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.