By Ron Bousso and Shadia Nasralla
LONDON (Reuters) – BP’s second-quarter profit jumped to $8.45 billion, the highest in 14 years, as strong refining margins and trading prompted it to boost its dividend and spending on new oil production and natural gas.
The strong performance caps a boom quarter for top Western oil and gas companies as soaring energy prices have increased pressure on governments to impose new taxes on the sector to help consumers.
“The company is performing well and continues to strengthen. We have real strategic momentum,” Chief Executive Bernard Looney told Reuters.
BP shares rose 3.6% in London trading.
Looney, who took office in 2020 vowing to quickly shift BP from fossil fuels to renewables, said the company would increase spending on new oil and gas by $500 million in response to the global supply crisis .
“We will be directing more investment into hydrocarbons to help with energy security in the near future,” Looney said. “We will probably direct about half a billion dollars to hydrocarbons.”
BP plans to keep its total capital spending this year in a range of $14 billion to $15 billion.
BP raised its dividend by 10% to 6.006 cents a share, more than its previous forecast of a 4% annual increase. In July 2020 it cut its dividend to 5.25 cents for the first time in a decade following the pandemic.
The company also increased its share buyback plan for the current quarter to $3.5 billion after buying back $4.1 billion in the first half of the year.
The company said it expected crude oil and natural gas prices and refining margins to remain “high” in the third quarter and said it would stick to its goal of using 60% of its excess cash for share buybacks.
The increase in revenue also allowed BP to sharply reduce its debt to $22.8 billion from $27.5 billion at the end of March.
BIG OIL BONANZA
BP lifted second-quarter profits for top Western oil and gas companies to $59 billion after rivals including Exxon Mobil and Shell reported record profits last week.
Its replacement cost underlying profit, its definition of net income, came in at $8.45 billion in the second quarter, the highest since 2008 and far beating analysts’ expectations of $6.8 billion.
That was up from $6.25 billion in the first quarter and $2.8 billion a year earlier.
The strong performance was driven by strong refining margins, “outstanding” performance in oil trading as well as higher fuel prices, although natural gas trading was weaker, BP said.
An outage at a major liquefied natural gas (LNG) plant on the US Gulf Coast also weighed on earnings.
The Freeport LNG plant supplies BP with 4 million tonnes of LNG per year, from a total portfolio of 18 million tonnes.
The company was able to redirect cargo to customers to cover the lost supply, but at increased costs that weighed on profits, Chief Financial Officer Murray Auchincloss told Reuters.
The company has set aside money to cover the extra cost of LNG supply as a result of the Freeport shutdown, he said.
(Reporting by Ron Bousso and Shadia Nasralla; Editing by Jason Neely)