British oil giant posts strong results on rising commodity prices; downplays concerns its pullback in fossil-fuel investment will crimp future earnings

By Jenny Strasburg/WSJ

LONDON
EnergiesNet.com 09 02 2022

BP BP -2.02% PLC sought to reassure investors that declining oil-and-gas production won’t cripple earnings for the remainder of the decade as the British energy giant pivots to lower-carbon investments.

The reassurances came on a day when BP posted strong quarterly and annual earnings, following similar results in recent days by Exxon Mobil Corp. XOM -2.57% , Chevron Corp. and Shell PLC. The large Western oil companies are experiencing resurgent comebacks following sharp profit declines earlier in the pandemic, as supply constraints push the prices of crude and gas higher.

BP on Tuesday reported an underlying replacement-cost profit of $4.1 billion in the fourth quarter. The metric is similar to net income that U.S. oil companies report. A full-year underlying replacement-cost profit of almost $13 billion represented BP’s strongest profit in nearly a decade and a swing back from its 2020 loss of almost $5.7 billion, by the same metric.

Flush with cash like its peers, BP said it would return more of that surplus to shareholders. It plans to spend another $1.5 billion to buy back shares before it reports first-quarter results, bringing full-year buybacks from 2021 surplus cash flow to more than $4 billion. BP maintained its dividend of 5.46 cents a share for the quarter

BP plans by 2030 to cut its fossil-fuel production by 40% from 2019 levels. Meanwhile, BP is increasing low-carbon investments in areas including electric-vehicle charging stations, hydrogen and bioenergy. Executives said Tuesday those so-called transition growth businesses will consume around 50% of total capital spending by 2030, an increase from more than 40% by 2025.

BP Chief Executive Bernard Looney said the company is striking the right balance of spending on low-carbon projects while maintaining profits from core fossil-fuel businesses. The company said it expects to sustain a key annual profit measure from its oil-and-gas business—earnings before taxes and other factors—at around $33 billion until 2030 in part by controlling costs.

After a dismal 2020 when investors fled the sector, rapidly rising commodity prices have fueled share-price comebacks of the largest Western oil companies. BP shares are up more than 20% this year and more than 60% over the past 12 months. The company’s shares were down roughly 2% Tuesday amid a similar decline in crude prices.

Still, the company’s transition to low-carbon businesses at a faster pace than the largest U.S. peers has stoked skepticism among some investors about BP’s longer-term outlook. Tuesday’s focus on the robustness of the fossil-fuel earnings despite production cuts was aimed in part at dispelling those doubts, Chief Financial Officer Murray Auchincloss said in an interview.

Oil-and-gas production cuts won’t have a big impact on cash flow, he said, “but there are still some parts of the sector that didn’t understand that.” He said work being done to automate and digitize production processes will help cut costs, and new projects such as offshore drilling operations in the Gulf of Mexico will boost per-barrel margins.

Surging crude prices are helping BP accelerate its plans to transition to low-carbon businesses. Longer-term, Mr. Auchincloss said, BP expects returns from lower-carbon businesses to be more stable.

Executives were peppered with questions Tuesday about the threat of sanctions against Russia, where BP’s relationships run deep. With its roughly 20% ownership of Russian state-controlled energy giant Rosneft, BP could be more vulnerable than peers if Ukraine tensions spur a backlash from the West, analysts say. The Rosneft stake accounted for $2.7 billion in underlying replacement-cost profit before interest and tax in 2021, about 12% of BP’s total in that metric.

Mr. Looney told analysts that BP hasn’t shifted any Russia operations in response to the threat of sanctions or other geopolitical fallout. “There are no changes to our ongoing business in Russia today, and if something comes down the road, then obviously we’ll deal with it,” he said.

Pressed about what potential impact sanctions could have on BP, Mr. Auchincloss in the interview said that past events suggest little reason for concern. “We’re kind of used to uncertain situations as we work in the oil and gas sector,” he said. “We haven’t seen any impacts over the past 30 years—nothing material.”

—Jaime Llinares Taboada contributed to this article.

Jenny Strasburg at jenny.strasburg@wsj.com

wsj.com 08 02 2022