BP share price slips back, as it announces another buyback

With the BP share price sitting near its highest levels this year, today’s Q3 numbers were always likely to be political catnip if they were anywhere near as good as Shell’s last week.

The fact that they beat expectations by quite some distance is likely to see the headlines dominated by calls for the current windfall tax bar to be set higher. The “energy profits levy” as it is known has been set at 25% until 2025 and puts BP and Shell effective UK tax rate at 65%.

Today’s Q3 numbers from BP of $8.15bn of underlying replacement cost profit, along with a pledge to buy back another $2.5bn of shares are likely to fuel the usual calls for higher tax on the oil giants with US President Joe Biden, the latest politician calling for the oil majors to do more for consumers to keep prices down.

The problem for Biden and other politicians is the tight nature of refining capacity, and the fact that this type of infrastructure takes years to build and millions of US dollars. For prices to come down significantly, global refining capacity would need to increase, and who would want to invest in that at a time when the global economy is pushing towards net zero.

While the headline number is impressive in terms of how close it came to matching Q2’s performance, the actual profits attributable to shareholders is zero due to an accounting adjustment which pushed the company into a quarterly loss of $2.16bn.

This adjustment came from its gas and low carbon energy unit which once again outperformed with profits of $6.24bn, however due to the volatility in forward gas markets and a repricing of forward gas prices, this has turned into a loss of $2.96bn. Its oil production and operations division returned $5.21bn in profits.

On top of the Rosneft adjustment earlier this year that means BP has actually recorded a -$13.29bn loss so far year to date, but that inconvenient fact is likely to fly under the political radar.

BP has already set aside an $800m adjustment in this quarter’s numbers in respect of the latest UK windfall tax, pushing the tax take from the North Sea to $2.5bn for this year. BP is also continuing to pay over $1.2bn a year in respect of the Gulf of Mexico oil spill.

The company also spent $3.2bn on capital expenditure this quarter taking the total year to date to just shy of $9bn, while it revised its full year capex number up to $15.5bn.

On the outlook BP remains committed to using 60% of its surplus cash flow for share buybacks, and the remaining 40% to strengthen the balance sheet.

Net debt also came down but only marginally to $22bn.

While today’s profit numbers will no doubt grab the headlines it is encouraging that BP is stepping up its capex investment albeit fairly modestly.

Spending on renewables is something that BP does need to do more of.

In Q3, capex spending on low carbon energy came in at $86m, out of a total of $958m, in its gas and low carbon energy division, down from $142m in Q2, taking the total spend on low carbon this year to $447m, out of a total of $2.64bn.

In oil production and operations total capex rose modestly to just shy of $1.4bn in Q3.