Despite a massive $24 billion writedown for its exposure to Russia, British oil giant BP and its industry peers are churning out cash faster than they are pumping dead dinosaurs out of the earth’s crust.
The British oil giant made it rain on Tuesday by announcing underlying profit of $6.2 billion in the first quarter, against $2.6 billion in the same period last year, crushing analysts’ expectations of 4 .5 billion dollars. The company now faces a delicate balancing act: returning that excess value to investors while assuring governments that it is not profiting from a struggling economy.
don’t mean to be rude
Acknowledging the obvious, BP attributed its windfall profits to “exceptional oil and gas trading”. Energy prices, including those for crude oil, have spent much of the year flirting with their highest values since the 2008 recession. At the same time, this is a deeply delicate time to gain so much money in the energy sector in the UK.
UK households are grappling with soaring energy bills after the country’s energy price cap rose by 54% on April 1. Seriously – 54%. Researchers from the Resolution Foundation have warned that up to five million English households could live in fuel poverty, meaning they would be forced to spend more than 10% of their income on fuel. Meanwhile, European governments have debated whether energy companies should be taxed for so-called “windfall profits” or the large sums made on fluctuating commodity prices which, as some claim, harm workers. With all of this at stake, BP has been especially careful to ensure that attentive shareholders and public officials feel heard. Let’s go into the details:
- Unlike Italy, which plans to increase a tax on the windfall profits of energy companies from 10% to 25%, the British government has not introduced a “windfall tax”. Chancellor of the Exchequer Rishi Sunak has said that could change if British energy companies don’t reinvest enough of their profits in the country. BP has pledged to invest £18bn in green energy and fossil fuel development in the UK by 2030; that may or may not be enough to keep Sunak and his Cabinet peers at bay.
- To please loyal shareholders, who before the energy boom weathered years of lackluster results, BP is accelerating quarterly share buybacks to $2.5 billion by the end of the second quarter from 1 .6 billion in the first quarter. By reducing the number of shares on the market, buybacks can increase the value of the remaining shares, which is quite a good thing for investors, who have already seen BP stock rise nearly 14% this year.
From Russia with a shrug: BP’s $24 billion write-down, intended to cover its withdrawal from Russia, was by far the largest loss from a major oil company’s Russian operations. Rival Shell’s impairment was a relatively modest $5 billion, Total’s $4 billion and Exxon’s $3.5 billion. Yet BP shrugged it off and said the loss would not prevent it from recovering money for its investors.