On Tuesday, BP shares were firmly in the red as the oil major reported a fall in profits as average hydrocarbon prices fell.
BP Q1 2023 replacement cost profits fell to $5bn, down from $6.2bn in Q1 2022 when oil prices skyrocketed after the Russian invasion of Ukraine.
Despite falling profits, BP remained a highly cash-generative business and announced a further $1.75 share buyback and another quarterly dividend of 6.61 cents.
Nonetheless, the deterioration in profitability saw BP shares fall over 5% on Tuesday as investors reacted negatively to the prospect BP will have a more challenging year than last year.
“The market has not taken kindly to the fall in profits, and the rest of the year could still present some challenges. However, the valuation is not overly demanding, and BP continues to invest in the future of both fossil fuels but also beyond. It remains to be seen if the greener side of the business can generate the same level of returns,” said Derren Nathan, head of equity research at Hargreaves Lansdown.
Windfall tax calls
Although profits are beginning to falter, BP is facing renewed calls for additional windfall tax after campaigners called their $5bn ‘heinous’.
“BP’s latest set of bumper quarterly results will do nothing to extinguish further calls for the oil major to pay even greater levels of windfall tax,” said AJ Bell investment director Russ Mould.
“BP did its best to signal how much it is already paying out in extra levies already, but this is unlikely to lead to any great deal of pity when the company is generating sufficient extra cash flow to sanction further share buybacks approaching $2 billion.
“It says something that this total, and the accompanying forward guidance around dividends and buybacks, was disappointing to shareholders and a likely reason behind a fall in the share price despite reporting better-than-expected profit. It also hints at the longer-term challenge facing BP as the company looks to balance investing in the energy transition while still doling out plenty of cash to keep investors happy.