BP will up its buybacks as fourth quarter earnings beat analyst estimates, while profits returned to pre-2022 levels.
BP (LON:BP) posted underlying replacement cost profits of $13.8 billion for full-year 2023 and $3bn for the fourth quarter, as earnings returned to levels seen prior to the outbreak of war in Ukraine.
That compares with a record $27.7bn achieved during full-year 2022, when the oil giant also announced it would slow the pace of its withdrawal from oil and gas.
On a pre-tax basis, profits amounted to some $1.1bn for Q4 2023, and $23.7bn for 2023.
BP will now up its next period of quarterly buybacks to $1.75bn, compared with $1.5bn last quarter, as part of a $3.5bn push during the first half of 2024 – in line with plans set out by rival Shell in its results last week.
Longer term the supermajor intends to see total share repurchases of “at least $14bn” through to the end of 2025 as part of our commitment to return at least 80% of surplus cash flow to shareholders.
CEO Murray Auchincloss hailed the results, adding that the company remained “confident in our strategy.”
“Looking back, 2023 was a year of strong operational performance with real momentum in delivery right across the business. And as we look ahead, our destination remains unchanged – from IOC to IEC – focused on growing the value of BP,” he said.
“We are confident in our strategy, on delivering as a simpler, more focused and higher-value company, and committed to growing long-term value for our shareholders.”
The quarterly results are the second over which Mr Auchincloss has presided following the sudden resignation of Bernard Looney last September. Mr Auchincloss was officially confirmed in the role in January, ending months of speculation over the future of the company’s leadership.
Shares in the supermajor rose nearly 6% by midday, to around 475p.
Murlach drilling underway
Looking at deliveries during the quarter, BP pointed to the start-up of its “major” Seagull project, which is expected to add around 15,000 barrels of oil equivalent per day of net production by 2025.
The oil giant also confirmed the spudding of the first of two wells at the Murlach field in the North Sea in October, following regulatory approval of the field development plan in September. First oil at Murlach is expected in 2025.
Overall, total oil production for the quarter was 1.42 million boepd, up more than 8% on Q4 2022. Across full-year 2023, production reached 1.38 million boepd.
Production in the gas and low carbon energy business stood at 899,000 boepd for the quarter and 929,000 boepd for the year – both lower than previous periods – which the company attributed to to base decline, “particularly in Egypt”.
BP’s renewables pipeline at the end of 2023 stood at 58.3GW net to the company.
It also hailed the recent restricting of a deal with Equinor for wind projects off New York, under which it will take full control of the Beacon Wind scheme. BP reported a pre-tax impairment charge of around $600m for the projects in its Q3 filings.
Looking ahead, capital expenditure was set at around $16bn per year through 2024 and 2025.
CFO Kate Thomson – also recently awarded her role on a full time basis – welcomed the results.
“BP delivered strong underlying financial performance in 2023 – we raised dividend per ordinary share by 10% and bought back $7.9 billion of shares. We remain focused on strengthening the balance sheet, with net debt falling to $20.9 billion, the lowest level over the past decade.
“As we look forward, we are staying disciplined, tightening our capital expenditure frame and simplifying and enhancing our share buyback guidance through 2025.”
‘Direction’ questions
Commenting on the outturn, RBC Brewin Dolphin senior investment manager John Moore said: “BP has beaten expectations for the final quarter of 2023, but fallen slightly short for the year. The company went through a significant amount of change last year and this, combined with a declining oil price, has had an impact on overall performance.
“Nevertheless, BP is still in resilient shape – surplus cashflow remains positive, net debt has fallen, and the management team’s optimism can be seen in the 10% increase in dividend distributions.
“Questions have been raised over its future direction and BP will need to strike a tricky balance of continuing to invest in its core energy business to deliver returns in the short term, while maintaining its long-term transformation.”
Panmure Gordon director and research analyst for oil and gas Ashley Kelty found the results “a mixed bag” and agreed investors were now concerned about long term prospects.
“Investors are more likely to be concerned about the longer term strategy with continuity candidates being appointed to CEO and CFO roles,” he said in a note.
“With peers moving away from renewables to focus on core skills around hydrocarbons, investors will be worried that BP may continue to pursue low margin renewables projects and continue underperformance vs peers.”
Meanwhile on returns, RBC associate director of European Research Biraj Borkhataria pointed to BP’s plans to maintain its new level of buybacks to the end of 2025, remarking it was “something that we don’t believe was expected by the market.”
“With BP putting out 2025 specific EBITDA targets, which are also above consensus expectations, the commitment on the payout front shows confidence in future delivery, we think.
“BP’s surplus payout ratio has become a source of (too) much debate, in our view, and while BP has now guided to a payout ratio of 80% of surplus cash flow (from 60%), the explicit commitment on buybacks for 2024 and 2025 should help partly remove this from the quarterly debates with investors.”
Criticism over ‘windfall’ profits
However, the return of “eye-watering payouts” to investors drew criticism from campaigners, who pointed to the continued impacts of the energy crisis on household bills.
Jonathan Noronha-Gant, Global Witness, Senior Campaigner, said: “BP’s shareholders remain among the biggest winners of Russia’s war in Ukraine. BP, which still owns a big chunk of Russian oil company Rosneft, profited massively from the resulting turbulence in energy markets, and now the firm has decided to hand that windfall to investors instead of clean energy or the victims of the war.
“Shareholders should want to protect their long-term positions. That means demanding a rapid clean energy transition for companies like BP. These reckless shareholder pay-outs do the opposite.”
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