BP’s Q4 earnings miss the mark….
BP said underlying replacement cost profit – its headline measure – in the fourth quarter came in at $4.8 billion. That was up over 18% from last year, although fell short of the $5.1 billion forecast by markets and marked a significant drop from what we saw in the third quarter thanks to softer commodity prices, weaker refining margins and tougher conditions for its gas trading arm.
… But BP’s profits hit record high in 2022
Still, the quarter was strong enough to round-off a stellar year for BP, which delivered an annual underlying RC profit of $27.7 billion. That was more than double what we saw in 2021 and blew past the previous record set back in 2008.
BP raises dividends and buyback
BP has raised its quarterly dividend by 10% to 6.61 cents and launched a new share buyback worth $2.75 billion. That will be welcomed by investors considering some analysts had feared that it would repurchase less than $2.0 billion worth of stock.
The better than anticipated returns came as BP generated much more cash than expected. Operating cashflow came in over $3.8 billion higher than forecast in the fourth quarter, giving BP the firepower needed to spray investors with cash, reduce net debt for the eleventh consecutive quarter to push it to its lowest level in almost a decade, and fund its transition to cleaner energy.
BP remains committed to shareholder returns. Growing the dividend remains high up on its list of priorities and the payout should continue to grow by at least 4% per year so long as oil prices remain above $60 per barrel. Meanwhile, around 60% of surplus cashflow will be used to fund buybacks with the other 40% being used to repay debt, which should see BP repurchase around $4 billion worth of shares each year at that oil price, with more cash on the cards if oil prices remain significantly above that level.
That is important considering BP is trying to close the gap after lagging some of its rivals in terms of returns in recent years. BP has offered investors a total return of 30% since the start of 2022, which is behind the 80% offered by Exxon Mobil and the 44% at Chevron, according to Bloomberg.
BP to split investment between clean energy and oil and gas
BP also outlined its latest plans as to how it plans to balance investment and cashflow going forward as it transitions toward cleaner energy projects.
Importantly, BP said 30% of its total investment last year went to transition growth engines such as bioenergy and electric vehicle charging – up from just 3% in 2019.
BP said it plans to invest up to $8 billion into cleaner energy projects between now and 2030 – and that is significant as that sum matches the budget put aside for its core oil and gas business to suggest they are now being treated equally. BP has made big waves in this space, having bought US biogas outfit Archaea Energy and advanced multiple hydrogen projects in the likes of Australia, Abu Dhabi, Egypt, Oman and Mauritania.
However, while investment in cleaner energy is rising, BP has also signalled that it will take longer to transition out of oil and gas. BP said it should be producing around 25% fewer hydrocarbons in 2030 compared to 2019. However, back in 2020, BP said production would be some 40% lower by the end of this decade. That suggests BP believes that both sides are vitally important for its short-term future.
‘It's clearer than ever after the past three years that the world wants and needs energy that is secure and affordable as well as lower carbon - all three together, what's known as the energy trilemma. To tackle that, action is needed to accelerate the transition. And - at the same time - action is needed to make sure that the transition is orderly, so that affordable energy keeps flowing where it's needed today,’ said CEO Bernard Looney.
BP said the accelerated investment into cleaner energy, plus a sharpened focus on oil and gas projects that offer a faster payback, should lead to faster earnings growth. This increased investment should deliver $3 billion worth of incremental earnings (Ebitda) in 2025 with hopes that will rise to $5 billion to $6 billion in 2030.
Where next for the BP share price?
BP shares are up over 3% in early trade this morning following the results at 495.35p.
The stock is on the verge of testing the 497.50p level of resistance that we have seen over the past four months. Once this has been recaptured, then it can target the three-year high above 503.0p. On the downside, the stock has only briefly fallen below the 100-day moving average during the past six months so this should provide some support at 471p if the stock comes under renewed pressure.
Notably, we can see that 497.50p ceiling is a firm one when we look at the monthly chart considering this has capped the share price over the last four months.
A move higher would allow it to target 561p level of resistance we saw for the five months to July 2019. Notably, that is in-line with the average target price set by the 26 brokers that cover the stock at 562.19p.
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