BP posts second-highest profits in a decade

Energy giant BP reported its second-highest annual profits in more than a decade, although they are half the level it reported the previous year.

Profits were $13.8bn (£11bn) in 2023, down from a record $27.7bn in 2022 when oil prices soared in the wake of Russia's invasion of Ukraine.

Oil prices fell last year, cutting profits at all energy companies.

However, BP said it was ramping up plans to return cash to shareholders.

These are the first results released by BP since the company announced the appointment of Murray Auchincloss as its new CEO.

The decline in BP's annual profits mirrors those of rival Shell, which said last week that profits fell to $28.2 billion last year, down from $39.9 billion in 2022.

In the last three months of 2023, BP reported earnings of $3 billion, which was higher than expected and its shares rose 5% on Tuesday morning.

The company also said it plans to increase returns to investors during the first three months of the year through $1.75 billion in stock buybacks. It also committed to repurchases worth $3.5 billion during the first half of 2024.

BP said it expects “underlying production from oil production and operations to be higher” this year, but gas and low-carbon energy production to be lower.

The company came under criticism last year from environmental groups after it scaled back plans to reduce the amount of oil and gas it produces by 2030.

In response to the latest findings, campaign group Global Witness criticized BP's policies.

“Shareholders must want to protect their positions over the long term. This means demanding a rapid clean energy transition for companies like BP. These reckless payments to shareholders do the opposite,” said the group's Jonathan Noronha-Gantt.

However, it was reported last week that one investor group – BlueBell Capital Partners – called on BP to scrap its targets to cut oil and gas production altogether, calling them “irrational”.

Susannah Streeter from Hargreaves Lansdowne said the priorities of the new BP chief had become clear.

“Although he pledged upon his appointment that BP's strategy to transition from an international oil company to an integrated energy company had not changed, the major share buyback announcement shows that the immediate focus is on strengthening the share price and returning value to shareholders.”

Nick Butler, former head of strategy at BP, told the BBC's Today program that there was talk that BP could be a takeover target.

“The real defense against takeovers is performance, and if that is the focus of the new CEO, then I think we can be more optimistic about the company,” he said.

Energy prices started rising when coronavirus lockdowns ended, but they jumped in March 2022 when Russia invaded Ukraine. There were fears of interruptions in energy supplies and many countries imposed sanctions preventing the import of all Russian oil and petroleum products.

The price of benchmark Brent crude reached nearly $128 a barrel shortly after the invasion, but now stands at just under $80.

Rising prices in 2022 have all energy companies making big profits. In response, the UK government imposed an unexpected tax, called… Energy Profit Tax (EPL)regarding companies' “extraordinary” profits from their UK operations to help fund a scheme to support gas and electricity bills.

This support scheme ended in June last year, but although household energy bills have fallen since 2022, they are still much higher than before the war in Ukraine started.

BP said its North Sea business paid $1.5bn (£1.2bn) in UK tax in 2023, of which $720m was owed to the EPL. The previous year, it paid $2.2 billion in taxes for its North Sea operations, including $700 million from the English Premier League.

There were fears of rising oil prices as a result of attacks launched by Houthi rebels on ships in the Red Sea, but so far these fears have not changed much.

The attacks prompted several companies, including BP, to divert ships out of the way through the Suez Canal. It is the fastest sea route between Asia and Europe and is of particular importance in transporting oil and liquefied natural gas.