bp slows transition to renewable energy as oil bonanza continues

Announces further $2.75 bn in share buybacks; annual profit more than doubles to a record $28 bn

bp on Tuesday reported a record profit of $28 billion for 2022 while boosting its dividend in a sign of confidence as it sharply raised overall spending plans and scaled back ambitions to reduce oil and gas output by 2030.
 
The blockbuster profit follows similar reports from rivals Shell, Exxon Mobil and Chevron last week after energy prices surged in the wake of Russia's invasion of Ukraine, prompting new calls to further tax the sector as households struggle to pay energy bills.
 
Three years after Chief Executive Bernard Looney took the helm with an ambitious plan to pivot bp away from oil and gas towards renewables and low-carbon energy, the firm said it will increase annual spending in both sectors by $1 billion with a sharper focus on developing low-carbon biofuels and hydrogen.
 
But it scaled back plans to cut oil output, now aiming to produce 2 million barrels of oil equivalent per day by 2030, down just 25 per cent from 2019 levels compared with previous plans for a 40 per cent cut.
 
While many investors backed Looney's strategy, which he told Reuters “is working”, bp’s shares have been the worst performers among top Western energy companies since the CEO took office, remaining largely flat compared with a 17 per cent gain for Shell and a nearly 80 per cent gain in Exxon shares.
 
bp’s $4.8 billion fourth-quarter underlying replacement cost profit, the company's definition of net income, narrowly missed a $5 billion forecast in a company-provided survey of analysts and compared with $4 billion a year earlier and $8.2 billion in Q3.
 
The results were impacted by weaker gas trading activity after an “exceptional” third quarter, higher refinery maintenance and lower oil and gas prices. But for the year, bp’s $27.6 billion profit exceeded its previous record of $26 billion in 2008 despite a $25 billion writedown of its Russian assets.
 
That allowed it to boost its dividend by 10 per cent to 6.61 cents per share, after halving it in the wake of the pandemic, and announce plans to repurchase $2.75 billion worth of shares over the next three months after buying $11.7 billion in 2022.
 
BP shares were 5 per cent higher by 1050 GMT. BP reiterated plans to divide its spending over the period to 2030 equally on the oil and gas business and its energy transition businesses, upping the total budget to up to $18 billion from a previously guided upper range of $16 billion.
 
Transition businesses, such as renewables and electric vehicle charging, account for around 30 per cent of the current budget compared with 3 per cent in 2019. “In a departure from its peers, it would appear that criticisms of its spending on renewables has started to sting,” said Michael Hewson, Chief Market Analyst at CMC Markets UK.
 
BP’s kept it returns outlook for renewables largely unchanged at 6 per cent-8 per cent, without the effect of debt, even though global offshore wind production costs have soared in recent months.
 
Looney said BP's wind and solar production will focus more on providing renewable power to generate biofuels and low-carbon hydrogen, doubling down, particularly in the United States where the landmark Inflation Reduction Act offers investment credits and tax cuts.
 
BP, whose trading operations further boost renewables returns, maintained plans to have 50 gigawatt of renewable projects under development and 10 GW operating by 2030.
 
It said it expects returns of upwards of 15% from its bioenergy business and its combined electric vehicle charging and convenience store businesses, while looking for double-digit returns on hydrogen.

 
It aims to translate this into a core profit from the transition businesses of $10 billion-$12 billion by 2030, out of targeted total group earnings before interest, tax, depreciation and amortisation (EBITDA) of $51 billion-$56 billion.
 
BP also wants to increase its focus on renewable natural gas having last year acquired U.S. producer Archaea Energy for $4.1 billion, and it has also set a target to produce 0.5 million-0.7 million tonnes a year of low-carbon hydrogen to initially supply its own refineries.
 
BP will focus its global oil and gas operations in nine regions, with plans to sharply increase output from its U.S. shale business and in the Gulf of Mexico.