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Wednesday, February 21, 2024

Oil giant BP pledges to return billions to shareholders

It came as BP said profits, on its preferred underlying replacement cost profit method, tumbled by 50% to $13.8bn (£11bn), as commodity prices eased after the spike that followed Russia’s full-scale invasion of Ukraine in February 2022.

Profits for the final quarter performed better than market forecasts, with BP reporting underlying profits of nearly $3bn against the $4.8bn it reported a year earlier.

Analyst Susannah Streeter of Hargreaves Lansdown suggested BP’s dividend announcements showed that the company’s priorities under chief executive Murray Auchincloss, who succeeded Bernard Looney on a permanent basis last month, “have been made clear”.

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Ms Streeter said: “Although on appointment he pledged that BP’s strategy to transition from an international oil company to an integrated energy company was unchanged, the big share buy-back announcement shows the immediate focus is on boosting the share price and returning value to shareholders. BP also said that shareholders would get a further $3.5bn in buybacks in the months to come, and more in 2025.

“This strategy is being pursued even though BP reported a sharp drop in underlying annual profit from $27.7bn to $13.8bn as oil and gas prices were lower and refining profit margins also weakened.”

At a time when the UK Government is taking steps to boost domestic energy production amid the fall-out of Russia’s invasion of Ukraine, including by issuing new licences, BP underlined its commitment to the North Sea last year by starting production at the Seagull field east of Aberdeen. The field is expected to add around 15,000 barrels of oil equivalent per day of net production by 2025.

BP has faced criticism from environmental groups for watering down net-zero targets set by former boss Mr Looney, who in 2020 outlined its ambition to become a net zero company by 2050. He initially set a target of a 40% cut in oil and gas production by 2030, based on 2019 levels, before later altering that goal to 25% within the same time-frame.

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While campaigners remain unconvinced by its environmental commitments, the company has been urged by some investors to ramp up its production of fossil fuels. It was reported recently that Bluebell Capital Partners, a small London-based hedge fund, had written to BP calling for it to ditch its clean energy pledges.

The company said yesterday that it had generated operating cash flow of $32.04bn over 2023, which was down from $40.9bn, and trimmed net debt by $1.4bn to $20.9bn by the end of the fourth quarter.

Mr Auchincloss, who stepped up to the chief executive role after predecessor Mr Looney failed to fully disclose personal relationships with colleagues, said: “Looking back, 2023 was a year of strong operational performance with real momentum in delivery right across the business.

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“And as we look ahead, our destination remains unchanged… focused on growing the value of BP.”

John Moore, senior investment manager at RBC Brewin Dolphin, noted: “BP has beaten expectations for the final quarter of 2023, but fallen slightly short for the year. The company went through a significant amount of change last year and this, combined with a declining oil price, has had an impact on overall performance.

“Nevertheless, BP is still in resilient shape – surplus cashflow remains positive, net debt has fallen, and the management team’s optimism can be seen in the 10% increase in dividend distributions.

“Questions have been raised over its future direction and BP will need to strike a tricky balance of continuing to invest in its core energy business to deliver returns in the short term, while maintaining its long-term transformation.”

Shares in BP closed the day up by 5.46%, or 24.8p, at 478.95p.

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