BP shares were ticking higher on Tuesday morning as the oil giant announced increased returns to shareholders through a 10% increase to their dividend and a $1.5bn share buyback.
As expected, BP’s profits have been curtailed by lower oil prices with replacement cost profit falling to $2.6bn in Q2 2023 from $5bn in Q1. BP recorded $8.5bn replacement cost profit in Q2 2023 in the immediate aftermath of Russia’s invasion of Ukraine.
Despite much lower profits, BP’s cash generation was resilient with $6.2bn in operating cash flow, although surplus cash flow swung into negative territory as BP pushed forward with shareholder returns.
Derren Nathan, head of equity analysis at Hargreaves Lansdown, suggested BP would continue to increase dividends despite lower oil prices:
“BP has been unable to escape the heavy blow to profits dealt by lower commodity prices this earnings season, and investors will be disappointed by today’s earnings miss. As a result, BP has unashamedly pushed shareholder returns to the top of its priority list, and has scope to continue raising the dividend over the rest of the year even if oil prices come under further pressure. It was pleasing to see this come without a cut to guidance on capital investment.”
There are significant projects in the pipeline both in economically attractive oil fields, such as phase 2 of the Mad dog project in the Gulf of Mexico, and entry into the European offshore wind market. BP needs to keep the pace of investment high if it wants to sustain growth in shareholder returns, and develop resilience against oil price volatility over the longer term.”
BP shares were 1.1% higher at the time of writing.