BP shares rise to two-month highs, even as annual profits halve

Having seen sector peer Shell beat expectations last week, the pressure was on BP to follow suit today with its full year and Q4 numbers, in a year that has also seen a change at the top of the organisation albeit for slightly different reasons.

While the new Shell CEO has broken away from the policies of his predecessor, new BP CEO Murray Auchinloss has shown little inclination to do the same thing preferring to stick with “Performing while Transforming” of his predecessor Bernard Looney, which saw BP miss profit expectations in its Q3 numbers due to weakness in its gas trading business.

As a result of this underperformance some shareholders have raised questions about the wisdom of going down this road, after activist investor Bluebell Capital called the current policy of reducing oil and gas production vs 2019 levels by 25% as “irrational” at a time when demand for oil and gas is rising.

In today’s Q4 numbers BP announced underlying profits of $2.99bn, beating forecasts of $2.76bn, while announcing a further buyback of $1.75bn ahead of its Q2 numbers, pushing the total for the first half of next year up to $3.5bn.

Unlike Q3 the underperformance in Q4 came from its oil production operations, which saw profits slow to $1.88bn, while gas trading remained steady. 

Full year profits came in at $13.83bn, half the level they were last year’s $27.65bn, and it is in these numbers that new CEO Auchinloss will struggle to convince shareholders of the wisdom of the current strategy, although in his defence BP did announce the startup of the new Seagull project in the North Sea which is expected to add 15k barrels of oil per day by 2025.

BP is also expanding its output in the Gulf of Mexico as well as Brazil, in the Santos basin.

In low carbon energy BP is also looking to buy the remaining 50% interest in Lightsource, the solar and battery storage developer and which has solar assets all over the world.  

Rather than following Shell’s example BP appears to be sticking with the current strategy and focussing on pacifying shareholders with throwing extra cash their way with further buybacks, pledging another $14bn through 2025, while also increasing the dividend by 10% to 7.27c a share.

While this is likely to be welcomed in the short term by shareholders, the reluctance to invest more money in longer term high margin projects is likely to be a concern if BP wants to maintain these levels of payouts to shareholders. BP insist that they can do that, with the shares rising to 2-month highs today, however that argument may well fall apart if Shell pulls further ahead.

Capital expenditure was similar to last year’s levels at $16.25bn and is expected to remain at that level in 2024, while net debt was reduced to $20.9bn.