BP shares were marginally weaker on Tuesday after the oil majors announced Q1 profits materially below the same period a year ago.
Oil and gas majors operate in a highly cyclical industry, which was demonstrated today in the BP earnings update. The company experienced a huge increase in earnings after Russia invaded Ukraine as oil prices soared. With the war now in its third year, oil prices have adjusted to the downside, and BP’s earnings have followed suit.
The big highlight for investors was the fresh buyback, which offset some of the disappointment around lower earnings.
“BP’s proving it can splash the cash to shareholders even in a lower pricing environment. Underlying profit is down across all divisions but the first half buy back target of $3.5bn remains, with a $1.75bn tranche announced today,” said Derren Nathan, head of equity research, Hargreaves Lansdown.
The replacement cost profit of $1.6bn in Q1 2024 was higher than in Q4 2023 but a major downgrade from the $8.7bn generated in Q1 2023.
In the past, share buybacks have been enough to inspire a rally in companies amid lacklustre earnings. This was not the case for BP on Tuesday, and shares were down 0.4% at the time of writing.
Investors will note the company’s defensive undertones with a plan to save $2bn annually by the end of 2026. This clearly isn’t a company expecting a huge level of top-line growth over that period.
The underlying price of oil and gas is undoubtedly the biggest driver of BP’s earnings. That said, investors may be encouraged to see that despite BP being an established operator, new assets coming online can help increase production and can have an impact on earnings. The world’s view of fossil fuel exploration is softening with the realisation oil and gas will play an important part in the energy transition and investors will look forward to updates on BP exploration programme and possible additions to BP’s production in the years to come.
“Commodity prices are out of BP’s control but where it can make a difference it is,” Nathan said.
“There’s a new plan to deliver cost savings of at least $2bn by the end of 2026 and some of the effects of lower prices have been offset by increased production. Theres new production on stream in the Caspian Sea as well as onshore United States in the Permian basin. There’s also development activity in the North Sea and exploration in Africa.”
Many investors will invest in BP for its dividend. Despite lower earnings, there’s nothing to suggest this dividend is under threat.
