BP boosts dividend after earnings hit 14-year high

  • Profits rose to $8.45 billion, far exceeding expectations
  • BP raises profit by 10%
  • BP CEO says to boost spending on oil and gas
  • Earnings are driven by strong oil trading, which has been hurt by LNG

LONDON (Reuters) – BP’s second-quarter profit jumped to $8.45 billion, a 14-year high, as strong refining margins and trades pushed the company to ramp up its dividend and spend on new oil and gas production.

The strong performance covers a huge quarter for the largest Western oil and gas companies on the back of high energy prices that have increased pressure on governments to impose new taxes on the sector to help consumers.

“The company is doing well and continues to strengthen. We have real strategic momentum,” Reuters CEO Bernard Looney said.

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BP shares rose 4.3% by 1315 GMT, hitting their highest levels since June and outperforming the European Energy Index (.SXEP) which rose 0.7%. BP shares have gained 23% this year but are still about 10% below pre-pandemic levels.

Looney, who took office in 2020 with a pledge to shift BP away from fossil fuels to renewables, said the company would increase its spending on new oil and gas by $500 million in response to the global supply crunch. Read more

“We will direct more investment towards hydrocarbons to help energy security in the near term,” Looney said. “It is possible that we will allocate about half a billion dollars to hydrocarbons.”

BP plans to keep its total capex this year in the range of $14 billion to $15 billion.

BP increased its dividend 10% to 6,006 cents a share, more than its previous guidance for a 4% annual increase. It halved its dividend to 5.25 cents in July 2020 for the first time in a decade in the wake of the pandemic.

The company also raised its stake repurchase plan for the current quarter to $3.5 billion, after it bought $4.1 billion in the first half of the year.

“The fact that the company posted its highest quarterly profit in 14 years, even though oil prices were higher during that period than they are now, suggests that BP is a more efficient machine than it was,” said Ross Mold, chief investment officer at AJ Bell. In the previous”.

The company said it expected crude oil and gas prices as well as refining margins to remain “high” in the third quarter and said it would stick to its goal of using 60% of its surplus cash for share buybacks.

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The increase in revenue also allowed BP to reduce its debt sharply to $22.8 billion from $27.5 billion at the end of March.

BIG OIL BONANZA

BP raises second-quarter earnings for the largest Western oil and gas companies to $59 billion after rivals Exxon Mobil (XOM.N) and Shell (SHEL.L) reported record profits last week. Read more

Basic replacement cost earnings, defined as net profit, were $8.45 billion in the second quarter, the highest level since 2008 and well above analysts’ expectations of $6.8 billion.

That was up from $6.25 billion in the first quarter and $2.8 billion a year earlier.

BP said the strong performance was driven by strong refining margins and an “exceptional” oil trading performance as well as higher fuel prices, despite weak gas trading.

The outage at a major LNG plant on the US Gulf Coast also affected earnings.

The Freeport LNG plant supplies BP with 4 million tons per year of LNG, out of a total portfolio of 18 million tons.

The company’s chief financial officer, Murray Ochenclus, told Reuters that BP was looking at ways to supply customers despite the supply losses, although that would come at a high cost.

Reuters graphics

He said the company had set aside funds to cover the additional costs of supplying LNG as a result of the Freeport outage.

Jefferies analysts estimated that these additional costs during the quarter will range from $700 million to $900 million.

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(Reporting by Ron Bousso and Shadia Nasrallah). Editing by Jason Neely

Our Standards: Thomson Reuters Trust Principles.

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