BP swings to massive profits on oil, gas price surge

Energy giant BP reported on Tuesday swung to a huge annual profit, driven by surging oil and gas prices, but warned of lower production and flat refining margins in the first quarter of the current year.

Underlying replacement cost profit at the UK company came in at $12.8bn compared with a net loss of $5.7bn a year ago. For the final quarter of 2021, profits on the same basis soared to $4.1bn from $115m a year earlier and above analysts' expectations of $3.93bn.

Quarterly results were supported by higher oil and gas prices and production, partly offset by weaker oil trading results and the impact of higher energy costs on operations such as refining, the company said.

The bumper results, which follow those of local rival Shell, and Chevron and Exxon Mobil in the US, come as British households face a spike in their energy bills, fuelling calls for the UK government to impose a windfall tax on the industry.

Britain’s energy regulator Ofgem last week announced a massive 54% increase to its price cap from April, meaning consumers could see their energy bills rise by around £700 a year, with an estimated 22 million households forecast to see higher energy costs.

Global gas and electricity prices have jumped in the last six months on tight gas supplies and higher demand as economies rebounded from the Covid pandemic. The Russia/Ukraine border crisis has also contributed to the increase.

BP said debt fell sharply to $30.6bn by the end of 2021 from $8.3bn. The dividend was held at 5.46 cents per share.

Looking ahead, the company said it expected first-quarter 2022 reported upstream production to be lower than the fourth-quarter of 2021 reflecting base decline and higher maintenance.

“Within this, we expect production from both oil production & operations and gas & low carbon to be lower. In gas markets, with ongoing geopolitical uncertainty, and low storage levels, we see the potential for continued price volatility,” the company said.

First quarter of 2022 industry refining margins were expected to remain broadly flat compared to the fourth quarter of 2021, BP added.

“In our customer businesses we expect product demand to remain impacted by ongoing uncertainty around Covid-19 restrictions and continued additive supply shortages in Castrol. In products we expect energy costs to remain under pressure.”

“For full year 2022 we expect both reported and underlying upstream production to be broadly flat compared with 2021.”

AJ Bell investment director said that while the UK government had ruled out a windfall tax for the oil and gas sector for now "the threat of a legislative intervention hangs in the air given the contrast between voters struggling to heat their homes and two of Britain’s biggest companies announcing such strong results and billions in giveaways to shareholders".

“The company, which Bernard Looney recently described as a ‘cash machine’, looks set to make larger withdrawals from this machine in the coming years as it invests in areas like hydrogen and renewables to stay ahead of the transition away from fossil fuels."

“The fact that a large portion of this investment will be concentrated in the UK could be seen as an attempt to head off the calls for a one-off levy on profits.