BP shares price slips back after profit decline

It’s not been a great year thus far for the BP share price; despite starting the year on a positive note, the shares have slid back from their April peaks to be languishing at 2-year lows back in September.

Today’s Q3 update has seen the shares slip back towards those lows at 380p despite the oil company announcing profits of $2.3bn, and a dividend of 8c a share.

BP also said it would be buying back a further $1.75bn in shares as it looks to target a total of $3.5bn in buybacks in the second half of the year.

Nonetheless today’s profits were a significant decline from the same quarter last year, when profits came in at $3.3bn, and well below those in Q2 of $2.8bn, marking the lowest quarterly return since the pandemic.

The main impact from the slowdown in profitability appears to be due to a significant increase in capital expenditure, which is almost $1bn higher from the same period a year ago at $12.5bn, with $4.5bn of that coming in the last quarter alone.

Lower margins in its oil trading business as a result of the recent fall in oil prices also haven’t helped either with profits there slowing to $2.8bn. Gas and low carbon energy saw profits increase to $1.75bn.

When new CEO Murray Auchinloss took over from previous CEO Bernard Looney, he pledged to carry on with his predecessor’s policy of “Performing while Transforming” the reality appears to be somewhat different given that he appears to be placing more emphasis on the fossil fuel business.

In July Auchinloss decided to abandon the company’s pledge to cut oil and gas output by 25% by 2030 to reduce emissions which was always likely to be a self-destructive policy at a time when demand for oil and gas is still rising.

Today’s fall in profits is likely to increase pressure on BP management from the likes of activist investors like Bluebell Capital to focus on its higher margin businesses in the same way Shell has been doing and as a result has seen their shares outperform BP’s by quite some margin over the last 4 years.

Nonetheless BP has continued to maintain that it is committed to its new EV and offshore wind projects with its commitment to spend $23bn between now and 2030 on these types of projects.  

For Q4 BP said it expects to see refining margins to remain under pressure, while upstream production is also expected to be lower compared to Q3, although BP did say it expects this trend to improve into next year.  

BP said it remains on course to meet its full year capex guidance for the full year at $16bn, and remains committed to its renewable’s projects having completed its takeover of Lightsource for $400m, having also taken on the net debt of $2.1bn in the process, helping to push total net debt to $24.3bn.

While it is clear that BP has taken steps to scale back the speed of its net zero plans, the fact that it has only started to do so is not being reflected in the share price, given that it has only just started the process unlike Shell which is already seeing the benefits in its own share price performance this year.

Events could further speed up this process if shareholders continue to exert pressure in the face of a declining share price. 

Share buybacks are all well and good but if they continue to come against a share price that continues to underperform then shareholder unrest about the BP management is only likely to increase.