BP reported first-quarter earnings that fell short of market expectations, primarily due to weakened oil and gas prices impacting its profit margin. The British energy giant maintained the share buyback plan of $3.5 billion in the first half of the year, with $1.75 billion completed in May of 2024. Furthermore, it announced a dividend payout of 7.27 cents per share. Following the report, BP's share price declined by more than 1.3% on the London Stock Exchange.
Profit declines, cash flow shrinks, debt rises
In contrast to rival Shell's robust results, BP's earnings fell short of market expectations across all key metrics. The energy giant's replacement cost profit dropped to $2.7 billion in the first quarter from $3 billion in the final quarter of 2023 and $5 billion in the same quarter of 2023, marking a 46% year-on-year decline. Analysts, according to LSEG, expected a net profit of $2.9 billion. The company attributed the lowered profit margin to "lower oil and gas realisations" and "the Whiting refinery outage." A higher tax rate has also been a factor contributing to the reduction in its net income.
The gas and oil segments accounted for 85% of its replacement cost profit before interest and tax in the quarter. BP indicated that a $1 per barrel price change in Brent would impact pre-tax replacement cost operating profit by $340 million. Additionally, a $0.1 per mmBtu price change in natural gas would have an impact of $30 million on the profit for the full year 2024.
Crude Brent futures prices fell from $95 per barrel in September 2023 to the current $85 per barrel. Meanwhile, natural gas prices more than halved from the high of $3.6 per mmBtu in November 2023 to $1.7 per mmBtu at the lowest point in March 2024, although the price experienced a surge in the last week.
Its operating cash flow contracted by $4.1 billion to $5 billion, inclusive of a working capital build of $2.4 billion, while net debt increased to $24 billion from $21 billion in the previous quarter.
BP expects improvements in both cash flow and debts by the end of the third quarter. Additionally, it announced plans to "simplify organisational structure and aim to achieve at least $2 billion of cash cost savings by the end of 2026".
CEO Murray Auchincloss stated the cost savings would be realised through "high grading our portfolio, digital transformation, supply chain efficiencies, and global capability hubs", and added that some cost savings might entail associated restructuring charges.
BP focuses on shareholder returns
Despite a decline in cash flow, the company maintained its plan for a $3.5 billion share buyback programme in the first half of 2024. It has completed the $1.75 billion share buyback on 3 May. CEO Auchincloss believes that the company is highly undervalued, the share buyback aims to boost its market valuation, thereby narrowing the gap with its major US peers. This raises the question of whether the company could consider switching its listing from the London market to the US, following rival Shell's threat to depart from the local market, although BP denied the possibility.
In fact, oil giants all launched massive share buybacks and dividend payout to lure investors amid broader profit declines resulting from weakened oil and gas prices. The phenomenon is broad as oil and gas producers saw profit plunging from 2022 when Russia started a "special military operation" in Ukraine. Shell unveiled a $3.5 billion share buyback programme, anticipated to be finalised over the next three months. Saudi Aramco foresees a total dividend payout of $124.3 billion for 2024.
Meanwhile, the American oil producer Exxon also intends to elevate its annual share buybacks to $20 billion in both 2024 and 2025.
