BP, under new leadership since January, is steering its focus toward high growth and greater returns for shareholders despite shrinking profit margins. CEO Murray Auchincloss has been guiding the company towards these goals as part of a strategic overhaul.
In its latest earnings report for the second quarter, BP announced an underlying replacement cost (RC) profit of $2.8 billion (€2.6 billion). This figure surpassed analyst forecasts of $2.6 billion (€2.4 billion) and marked a 4% increase from the previous quarter’s $2.7 billion (€2.5 billion). The profit surge was driven by elevated oil and gas prices, which counterbalanced significantly lower refining margins.
In response to the strong performance, BP raised its dividend by 10% to 8 US cents (€0.07) per share, up from 7.27 US cents. The company also extended its share buyback program to $3.5 billion (€3.2 billion), bringing total investor returns for 2024 to $7 billion (€6.4 billion). Initially, BP’s shares climbed 2% but ended the day 0.3% lower on the London Stock Exchange due to a sharp drop in crude prices.
Key Financial Highlights:
Oil Production: RC profit in oil production and operations increased by 6.5% to $3.3 billion (€3.04 billion) from $3.1 billion in the prior quarter. This rise was attributed to higher fuel prices and reduced tax rates, despite a drop in refining margins.
Refinery Writedown: BP confirmed a writedown of $1.5 billion (€1.38 billion) related to its Gelsenkirchen refinery in Germany. This figure was lower than the initially estimated $2 billion (€1.84 billion). Earlier in the month, BP had warned that weak refining margins and lower oil trading results could reduce second-quarter profits by $500 million (€460 million) to $700 million (€640 million).
Gas and Low-Carbon Energy: The sector reported a loss of $0.3 billion (€0.28 billion), down from a $1 billion (€0.92 billion) profit in the previous quarter, reflecting lower gas prices.
Customer and Product Segment: This segment reported an adjusted RC profit of $1.1 billion (€1.01 billion), a decrease from $1.3 billion (€1.2 billion) year-over-year. The lower profit was due to reduced refining margins, despite improved fuel margins.
Cash Flow and Debt:
Operating cash flow rose to $8.1 billion (€7.46 billion), with a working capital release of $0.5 billion in the second quarter, up from $5 billion (€4.6 billion) in the previous quarter. Net debt decreased to $22.6 billion (€20.81 billion) from $24 billion in the first quarter, largely due to strong operational cash flow.
Strategic Changes:
BP is shifting its focus towards higher-margin fossil fuel projects. The company decided to advance the development of the Kaskida oilfield in the Gulf of Mexico, signaling a move away from low-carbon initiatives. Auchincloss emphasized the company’s new direction: “We are focusing on streamlining our operations and reducing costs while boosting our growth. The approval of the Kaskida project and the decision to fully own bp Bunge Bioenergia, coupled with the scaling back of new biofuels projects, illustrate our commitment to becoming a simpler, more valuable company and increasing returns for shareholders.”
Previously, BP aimed to cut emissions by 35% to 40% by 2030 and achieve net zero by 2050. However, in early 2023, the company revised this target to a 20% to 30% reduction. Despite this, BP is moving forward with plans for a green hydrogen facility at its Castellon refinery in Spain and is expected to make a final investment decision on a green hydrogen project in Germany.