BP Experiences the Downside of High Expectations
Oil major’s latest share buyback plan disappoints investors who have grown used to generous handouts
By Carol Ryan
Energy companies are adjusting to lower demand for the commodities they sell. PHOTO: CHRIS RATCLIFFE/BLOOMBERG NEWSA bad reaction to BP’s latest results suggests that shareholders’ expectations haven’t come back down to earth as quickly as energy prices.
On Tuesday, the London-listed company said it made underlying earnings of $4.96 billion for the first three months of the year.
This was lower than the $6.25 billion BP managed over the same period of 2022, but 16% higher than analysts were forecasting.
The better-than-expected result was mainly due to the company’s oil-and-gas trading division, which tends to do well when commodity prices are volatile.
But the stock fell 7% in early trading.
Investors seem to be disappointed by the company’s plan to buy back $1.75 billion of its shares in the second quarter, down from the $2.75 billion it purchased during the first.
A build up of working capital meant operating cash flow was lower than expected. BP allocates 60% of its surplus cash flow for buybacks and this number can be volatile.
Energy companies are adjusting to lower demand for the commodities they sell.
Russia’s invasion of Ukraine last year caused a surge in global energy prices, generating record industry profits.
Oil-and-gas majors lavished shareholders with dividends and buybacks.
Energy prices are still higher than normal but have come down from their peaks.
Europe’s benchmark TTF natural-gas price, which reached a record high of around €350 a megawatt hour last August, equivalent to about $384, is now trading at €38.
The weather has been mild, so the region made it to the end of the winter heating season with unusually high levels of gas left in storage.
BP’s finance chief also said on a call with investors that industrial demand for liquefied natural gas in China has been slow to recover, but should pick up later this year.
Brent oil was $81 a barrel on average over the three months through March, 8% lower than averages in the fourth quarter, according to analysts at Bernstein Research.
A price increase caused by an OPEC+ production cut that was announced in early April has since been wiped out by worries about the global economy.
Today’s share-price drop erases some of the gains that BP has made since the company said it would slow down its shift to lower-carbon sources of energy such as green hydrogen and wind power.
In February, management scrapped an ambition to cut oil-and-gas production by 40% by 2030 relative to 2019 levels, replacing it with a 25% target.
This was meant to help the company reap high fossil-fuel profit while it also invests in more sustainable businesses.
BP has shown it is able to pump profit even as energy prices cool.
Its latest challenge may be to manage investors’ higher hopes.
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