BP is choosing to funnel its surplus cash to investors, rather than spend more in the green energy transition, points out ITV’s Joel Hills.
BP is planning to invest up to £18bn in the UK energy system by 2030, including in offshore wind generation and electric car charging network.
On Monday, it said it would invest up to £50m in an electric vehicle (EV) battery testing centre and analytical laboratory at its operations in Pangbourne, Berkshire.
Brexit opportunities minister Jacob Rees-Mogg has voiced opposition to a fresh windfall tax on energy firms, even though they are enjoying such large profits.
Speaking after BP’s profits soared amid the cost-of-living crisis, Rees-Mogg told LBC radio:
“I’m not in favour of windfall taxes. The energy industry is enormously cyclical.
“You need to have a profitable oil sector so it can invest in extracting energy.”
The £5bn windfall tax (or ‘profits levy’) announced by former chancellor Rishi Sunak in May included a 90% tax break on firms who invested in oil and gas extraction in the North Sea.
Liz Truss, Sunak’s rival to become prime minister, rejected suggestions of another windfall tax on the profits of energy companies last week, after British Gas owner Centrica reported bumper earnings.
The surge in energy prices are also driving up costs for companies such as Greggs.
Greggs customers could face further price rises after the bakery chain warned this morning that its costs would rise by 9% this year – four percentage points more than predicted at the start of 2022.
In its latest results, the company said cost inflation “increased significantly” in the first half of the year led by pricier food ingredients and packaging.
Greggs added 5p to 10p to the price of its products at the start of 2022 and raised prices again in May as it said the cost of ingredients was increasing. At the start of the year, the group predicted prices would rise by 5% and upgraded that to 7% in March before the latest increase.
Fears of shortages of cereals and sunflower oil from Ukraine as well as petrochemicals from Russia have added to existing inflation caused by energy and fuel price rises, and a bounce-back in demand since pandemic restrictions eased in many parts of the world. More here.
BP profits are “an insult to families struggling to get by” in the cost of living crisis, says unions.
TUC General Secretary Frances O’Grady said:
“Every family should get a fair price for the energy they need. But with energy bills rising much faster than wages, these profits are an insult to families struggling to get by.
“For a fair approach to the cost of living crisis, price hikes and profits should be held back. Ministers must do more to get wages rising across the economy. And we should bring energy retail firms into public ownership so we can reduce bills for basic energy needs.”
Energy bills could reach more than £3,600 a year this winter with soaring wholesale prices expected to continue to push household costs up at least until 2024.
The research firm Cornwall Insight has upped its forecast that show the energy price cap is on track to rise to £3,615 a year from January, an increase on its previous estimate of £3,363 made last month.
The cap on bills in Great Britain, which is now being set quarterly by the energy industry regulator, Ofgem, was at £1,400 a year as recently as October last year.
“What we are seeing is the extent to which there is so much uncertainty regarding the ongoing availability of gas from Russia to the European Union as winter approaches,” said Craig Lowery, a principal consultant at Cornwall Insight, speaking on the BBC Radio 4 Today programme on Tuesday.
“Frankly it has not been uncommon to see our forecasts to change by as much as £100 a day as a consequence of this. We really have seen throughout spring and summer this progressive trend upwards in our forecasts.
But crucially what we are seeing is the level of increases in these forecasts is continuing well into 2023 and at this point we don’t see any sign of it easing off going into 2024.”
Creating a state energy provider would help UK protect consumers from surging prices, argues Miatta Fahnbulleh, the head of the New Economics Foundation.
Fahnbulleh points out that France’s government capped price rises (and is now fully nationalising state provider EDF), which limited the cost of living squeeze on French households.
Shares in BP have jumped 3% at the start of trading in London, after it tripled its profits in the last quarter and lifted its dividend to shareholders by 10%.
BP has reported ‘eye-watering profits’ at a time when the public are very worried about their energy bills jumping in the autumn, says Rachel Reeves MP, Labour’s Shadow Chancellor.
“People are worried sick about energy prices rising again in the autumn, but yet again we see eye-watering profits for oil and gas producers.
“Labour argued for months for a windfall tax on these companies to help bring bills down, but when the Tories finally u-turned they decided to hand billions of pounds back to producers in tax breaks. That is totally wrong.
“It’s clear people need greater protection from rising bills. That’s why Labour would use this money now to help people get through the winter.
“But we can’t carry on like this. Labour would bring down energy bills for good with a green energy sprint for home-grown power, and a 10-year warm homes plan to cut bills for 19 million cold, draughty homes.”
Today’s results show that bp continues to “perform while transforming”, the company’s CEO Bernard Looney says:
Our people have continued to work hard throughout the quarter helping to solve the energy trilemma – secure, affordable and lower carbon energy.
We do this by providing the oil and gas the world needs today – while at the same time, investing to accelerate the energy transition.
This is BP’s highest profit in 14 years, Reuters points out — just as families face winter energy bill pain.
BP will also funnel profits to shareholders through a new share buyback programme.
The company has announced it will conduct $3.5bn of share buybacks — a way of returning cash to shareholders.
BP can afford this because it generated surplus cash flow of $6.6bn in the last quarter, saying:
bp has now announced share buybacks from 2021 and first-half 2022 surplus cash flow equivalent to 60% of the cumulative surplus cash flow.
BP also executed share buybacks of $2.3bn in the last three months.
BP’s profits soared to $8.5bn due to strong refining margins, continuing “exceptional” oil trading performance and higher energy prices.
BP is lifting its payout to shareholders by 10%, as investors reap the rewards from its jump in profits.
The company will pay a dividend of just over 6 cents per share, up from 5.46 cents per share in the first quarter of the year.
The $8.5bn profits which BP made in the last quarter is significantly higher than analyst forecasts (of $6.8bn).
So far this year, BP has made underlying replacement cost profits of $14.7bn — almost triple the $5.4bn in the first half of 2021.
BP has tripled its underlying profits in the last quarter, as it benefitted from soaring energy price.
The energy giant has reported underlying replacement cost profit of $8.45bn (£7bn) in April-June, up from $2.8bn in the second quarter of 2021.
That’s also even higher than the underlying replacement cost profit of $6.2bn it made in Q1, which was the highest for 10 years.
Laura Hoy, an equity analyst at Hargreaves Lansdown, predicts (via the Daily Mail):
‘BP will continue to reap the reward of elevated oil prices in the second quarter with healthy profits expected.
‘BP has promised further share buybacks to the tune of $2.5billion (£2.1billion) in the second quarter, to return a portion of surplus cash flow to investors, though no shareholder returns are guaranteed.’
Good morning, and welcome to our rolling coverage of business, the world economy and the financial markets.
BP’s chief executive Bernard Looney famously, or notoriously, described his company as a ‘cash machine’ last November. And today, we discover how much profits BP made in the last quarter as the Ukraine war drove up energy costs.
BP could report its highest profit in more than a decade, reigniting controversy over energy companies making money during an energy crisis.
The industry has benefited from soaring oil and gas prices that have left millions of UK households struggling to pay their bills, which are set to soar over £3,000 per year this winter.
Analysts predict BP’s underlying earnings could hit $6.8bn for the three months to June, more than double the $2.8bn of a year earlier. We’ll find out when BP’s results are released at 7am.
That’s even higher than the $6.2bn ‘underlying replacement cost profit’ BP made in the first quarter of the year, due to high operating-cash generation, strong oil-and-gas trading and a significant improvement in refining margins.
BP’s fellow oil supermajors have already reported eye-watering earnings for the last quarter, with Shell making adjusted profits of $11.5bn…and Exxon reporting an unprecedented $17.85bn.
Also coming up today
High street bakery Greggs, drinks group AG Barr, pizza delivery firm Domino’s building materials supplier Travis Perkins are also reporting results, while building society Nationwide is releasing its latest house price data.
British Airways has reportedly suspended the sale of short-haul flights from Heathrow for at least a week, adding to the problems facing holidaymakers this summer.
Thousands of seats being removed from sale, as BA complies with Heathrow’s cap of 100,000 passengers per day. It will push already high prices up further across the industry, points out The Times.
Stock markets are somewhat jittery this morning, as traders brace for US House Speaker Nancy Pelosi’s expected arrival in Taipei this week, as tensions between Washington and Beijing rise.
Brent crude has dropped below $100 per barrel overnight, as recession fears also rise after weak factory growth figures yesterday.
- 7am BST: BP Q2 results released
- 7am BST: Greggs, AG Barr, Travis Perkins and Domino’s also report results
- 7am BST: Nationwide house price index for July
- 3pm BST: US JOLTS survey of job openings in June