BP’s bumper earnings stoke new calls for windfall tax

BP recorded its highest quarterly earnings in more than a decade on the back of soaring prices for hydrocarbons and “exceptional” trading revenues, prompting renewed calls for higher taxes on oil and gas companies to offset surging energy costs for consumers.

The group’s underlying profit on a replacement cost basis, the measure most closely tracked by analysts, rose to $ 6.2bn in the first three months of the year, the highest since 2008 and more than double the $ 2.63bn recorded a year earlier.

The bumper figure, which came despite a loss of earnings from Russia after taking a mammoth writedown on its business in the country, came on the back of BP’s highest full-year profit in eight years.

Sir Keir Starmer, leader of the UK opposition Labor party, said BP’s earnings reinforced the case for a windfall tax on oil and gas profits from the UK North Sea, while Ed Miliband, Labor’s shadow climate change and net zero secretary, criticized the government for “Refusing to act”.

BP chief executive Bernard Looney told the Financial Times he understood that many households were “really, really struggling” and that BP’s role was to return cash to shareholders including millions of UK pensioners, pay its taxes and invest in the UK energy system.

UK Prime Minister Boris Johnson on Tuesday rejected the new calls for a windfall tax, even after Chancellor Rishi Sunak said last week it remained an option.

Johnson’s government has argued that such a levy would deter investment in the North Sea. But one senior government figure said more Conservative MPs would have supported a windfall tax if the prime minister had backed one six months ago.

“Having said we’re not doing it, then turning around and doing it, would be bad, it would cede ground to Labor,” the person said.

BP said it intended to invest up to £ 18bn in Britain’s energy system by the end of 2030 and expected to pay up to £ 1bn in taxes on its North Sea oil and gas profits this year. BP declined to disclose what percentage of the $ 6.2bn in quarterly profits was generated in the UK.

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Looney said the redirection of global energy flows following Russia’s invasion of Ukraine had resulted in “the most volatile period in probably energy markets history”, adding that the volatility underlined the need for integrated energy companies such as BP.

“Our first job is to make sure that we connect the supplier of products to the demand for products and in this quarter that role has never been needed more by the world,” he said.

BP’s quarterly profits far exceeded average analyst estimates of $ 4.49bn and was up from $ 4.07bn in the final three months of 2021. Its shares were up slightly more than 2 per cent in late-morning trading on Tuesday.

This performance came despite the company’s decision in February to divest its 19.75 per cent stake in Russian oil producer Rosneft following the invasion of Ukraine, which resulted in a pre-tax charge of $ 24bn and a paper loss for the quarter of $ 20.4bn – the highest quarterly loss in BP’s history.

BP still holds the stake, for which there are few potential buyers given the decisions by most international energy companies to distance themselves from Russia. The company declined to comment on how and when it expected to divest the shareholding.

The writedown weighed slightly on the oil major’s underlying earnings – in the final quarter of 2021, Rosneft added $ 745mn to BP’s adjusted profits – but was more than compensated for by the impact of high commodity prices and the performance of other divisions.

“It’s not just the trading business, it’s right across the company, the business is running well,” Looney said, adding that BP’s convenience retail division had its best first quarter on record.

The company maintained its dividend and expanded its buyback program to $ 2.5bn in the second quarter of 2022 after completing buybacks of $ 1.6bn in the first three months of the year.

While the stake in Russia’s state-backed oil producer was once at the heart of BP’s long-term strategy, even before the war some investors felt it had become increasingly incompatible with the group’s plans to cut oil and gas production by 40 per cent by 2030 , while increasing spending on renewable power generation 20-fold.

“BP ex-Russia is a lower risk investment and the rest of the businesses are performing well,” said Bernstein analyst Oswald Clint. “Across the divisions it’s all about higher volumes, price capture, refining margins and exceptional trading contribution.”

Additional reporting by Jim Pickard

Climate Capital

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