BP’s profits more than doubled to $3.2bn (£2.4bn) in the first quarter, driven by the soaring cost of crude oil as the Iran war roiled global energy markets, the company has said.
The FTSE 100 oil giant reported an underlying replacement cost profit of $3.2bn for the three months to the end of March, up from $1.38bn a year earlier and $1.54bn in the previous quarter. The figure comfortably beat the $2.67bn that most analysts had pencilled in.
Oil trading fuels surge
The group’s customers and products division, which houses its oil trading unit, delivered profits of $2.5bn (£1.84bn) – a dramatic leap from $1.4bn in the previous quarter and just $103m a year ago. BP described its oil trading performance as “exceptional” and also booked an “exceptional gas marketing and trading result”.
The surge was directly linked to the conflict with Iran, which sent crude prices spiralling. Brent crude averaged $81.13 a barrel in the first quarter, up from $63.73 in the final three months of last year, and by March the price had hit $103 a barrel – a $32 jump from February alone. The disruption to the Strait of Hormuz, a critical chokepoint for global oil shipments, injected extreme volatility into the market, allowing traders to capitalise on wide price swings. A lower level of refinery maintenance also helped bolster the division’s performance.
BP’s overall reported profit for the quarter stood at $8.2bn, though that was down from $10.8bn in the previous period, a fall the company attributed to inventory holding losses and other adjusting items.
Financial health and shareholder returns
Despite the volatile backdrop, BP continued to strengthen its balance sheet. Net debt fell to $21.2bn at the end of the quarter, down from $27.4bn a year earlier. The company announced a further $1.75bn in share buybacks, to be executed from surplus cash flow, having already completed $2.2bn in buybacks during the first quarter. A separate $2.75bn buyback programme, announced with the fourth-quarter results, was completed on 28 April. BP said it remains committed to using 60% of its 2023 surplus cash flow for share buybacks, subject to maintaining an investment-grade credit rating. A dividend of 6.61 cents per ordinary share was declared, payable in the second quarter.
Criticism and taxation
The bumper profits have drawn sharp criticism amid the ongoing cost-of-living crisis. Analysis by the campaign group Common Wealth found that BP spent ten times more on shareholder payouts – dividends and share buybacks combined – than on its “low carbon” segment during the first quarter. Meanwhile, the company estimated it had incurred taxes of around $650m for its North Sea business in the quarter under the UK’s windfall tax regime. BP expects to have paid a total of $2.5bn for its North Sea operations in 2022, including the Energy Profits Levy.
In the wider UK energy market, the first quarter saw gas demand fall as prices remained high, while renewable energy’s share of electricity generation hit a record 47.8%. For the first time, wind power surpassed natural gas as Britain’s largest source of electricity generation, according to industry data.
Strategic developments
BP is also pressing ahead with its transformation into an integrated energy company. It has agreed to acquire TravelCenters of America, a major network of US highway travel centres, and is progressing low-carbon initiatives including a deal to take a 40% stake in the Viking carbon capture and storage project in the North Sea. Three BP-led hydrogen and carbon capture projects in north-east England have been selected by the UK government to move to the next stage of development, and the company is planning a low-carbon green energy cluster in Spain’s Valencia region, centred on green hydrogen production at its Castellón refinery. On the hydrocarbons side, BP is advancing the Mad Dog Phase 2 project in the Gulf of Mexico, which recently started up.
Analyst expectations and outlook
BP’s first-quarter profits of $3.2bn came in well above the consensus analyst forecast of $2.67bn. The company expects oil prices to remain elevated, supported by OPEC+ production cuts and strengthened demand from China. However, it cautioned that industry refining margins are likely to be lower in the second quarter, driven by weaker middle distillate margins and narrower North American heavy oil crude differentials. Reported upstream production in the second quarter is also expected to fall because of seasonal maintenance.
