BP’s first-quarter earnings beat market expectations but eased off the record levels set in 2022, prompting a drop in the pace of planned share buybacks.
The UK energy group left its quarterly dividend unchanged after raising it 10 per cent in February but pared back share repurchases, announcing $1.75bn in buybacks to be completed in the next three months, down from the $2.75bn of buybacks announced in the first quarter.
The drop put pressure on BP’s shares, which were down more than 5 per cent on Tuesday morning, despite reporting underlying profits of $5bn for the first three months of the year.
The quarterly figure exceeded average analyst forecasts of $4.3bn but was less than the $6.2bn recorded in the first three months of 2022 after Russia’s full invasion of Ukraine sent oil and gas prices soaring.
Oswald Clint, an analyst at Bernstein, said the lower level of share buybacks would cause “some concern” but noted that the company was “simply following” its commitment to return 60 per cent of surplus cash flow to shareholders via buybacks in 2023.
BP chief financial officer Murray Auchincloss said the lower rate of share repurchases reflected the impact of lower oil and gas prices on cash flow, adding that $1.75bn was actually $250mn more than the 60 per cent of surplus cash flow the company had committed to.
BP’s shares have rallied 30 per cent in the past 12 months but the UK energy major continues to view its stock as undervalued, particularly compared with US rivals, which are trading at much higher multiples of their cash flow.
In response, it has continued to use billions of dollars of profits for share buybacks, repurchasing $11.25bn of its own shares last year.
Auchincloss said the valuation gap to US peers was a “great motivator”.
“We believe that if we perform well . . . and we continue the buyback increases and the dividend increases . . . we will start to close a lot of the gap,” he said.
BP said its strong quarterly earnings, which were almost double the $2.6bn reported in the same period in 2021, were driven by “exceptional” and “very strong” performances from its gas and oil trading teams.
The company, like Shell and TotalEnergies, does not break out the financial performance of its commodity traders, but those divisions are important generators of profit.
In the first three months of the year, BP’s gas traders had made “the right call on the price declining across the quarter” and the company had signed profitable new marketing deals, Auchincloss said.
BP’s oil traders had also had a “very good” quarter, he said, adding that several “time-trades”, where oil is bought and sold over different time periods, “were done well”.
In the UK North Sea, where BP is a top five oil and gas producer, it paid $650mn in taxes in the first quarter, Auchincloss said, including about $300mn under the Energy Profits Levy. BP had now paid about $1bn in additional taxes since the government introduced the levy last year, he added.
Looking ahead, BP said it expected oil prices to “remain elevated”, driven by strengthening Chinese demand and the April decision by the Opec cartel and its allies to restrict production.
Recovering Chinese gas demand, restocking of European gas storage and coal-to-gas switching for power generation would also keep European gas prices higher than historical averages, it said.