BP raises dividend after earnings hit 14-year high

  • Earnings soar to $8.45 billion, far exceeding forecasts
  • BP increases dividend by 10%
  • BP will increase spending on oil and gas, says CEO
  • Profits Boosted by Strong Oil Trading, Hit by LNG

LONDON, Aug 2 (Reuters) – BP’s (BP.L) second-quarter profit soared to $8.45 billion, its highest level in 14 years, as strong refining and trading margins propelled it higher its dividend and spending on new oil and gas production.

The strong performance caps a blowout quarter for major Western oil and gas companies as high energy prices have increased pressure on governments to impose new taxes on the sector to help consumers.

“The company is doing well and continues to go from strength to strength. We have real strategic momentum,” Chief Executive Officer Bernard Looney told Reuters.

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

Looney, who took office in 2020 with a promise to quickly shift BP from fossil fuels to renewables, said the company will increase its spending on new oil and gas by $500 million in response to global supply shortages. read more

“We will direct more investment towards hydrocarbons to help with energy security in the short term,” Looney said. “We will probably allocate around 500 million dollars for hydrocarbons.”

BP plans to keep its overall capital spending this year in a range of $14 billion to $15 billion.

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

The company also increased its share buyback plan for the current quarter to $3.5 billion after buying $4.1 billion in the first half of the year.

“The fact that it produced its highest quarterly profit in 14 years, despite the fact that oil prices were higher during that period than they are now, suggests that BP is a more efficient machine than before,” said the director of AJ Bell Investments, Russ Mold.

The company said it expected crude and gas prices, as well as refining margins, to remain “elevated” in the third quarter and said it would stick to its goal of using 60% of its excess cash in the repurchase of shares.

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

GREAT OIL BONANZA

BP lifts the second-quarter profit tally for major Western oil and gas companies to $59 billion after rivals such as Exxon Mobil (XOM.N) and Shell (SHEL.L) reported record profits last week. read more

Its underlying replacement cost profit, its definition of net profit, hit $8.45 billion in the second quarter, the highest since 2008 and far exceeded analyst expectations of $6.8 billion.

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

The strong performance was driven by strong refining margins, “exceptional” oil trading performance and higher fuel prices, although gas trading was weaker, BP said.

An outage at a major US Gulf Coast liquefied natural gas (LNG) plant also hurt earnings.

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

BP is looking for ways to supply customers despite the loss of supply, although that will come at a high cost, Chief Financial Officer Murray Auchincloss told Reuters.

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The company allocated money to cover additional LNG supply costs as a result of the Freeport outage, it said.

Jefferies analysts estimated those additional costs this quarter to be between $700 million and $900 million.

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Reporting by Ron Bousso and Shadia Nasralla; edited by Jason Neeley

Our standards: the Thomson Reuters Trust Principles.

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