ii view: BP still popular as shareholder returns bolstered

This oil major continues to transform as robust cashflows underpin increased shareholder returns. We assess prospects. 

Second-quarter results to 30 June

• Underlying replacement cost profit up 35% from the previous quarter to $8.4 billion (£7.22 billion)
• Net debt down 30% to $22.8 billion (£19.6 billion)
• Dividend up 10% year-over-year to 6.006 US cents per share
• A further share buyback programme of $3.5 billion (£3 billion)

Chief executive Bernard Looney said:

“[These] results show that BP continues to perform while transforming. Our people have continued to work hard throughout the quarter helping to solve the energy trilemma - secure, affordable and lower carbon energy. We do this by providing the oil and gas the world needs today - while at the same time, investing to accelerate the energy transition.”

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ii round-up:

Founded in 1901, oil major BP (LSE:BP.) today operates across four areas. 

Production and operations account for its core hydrocarbon operations. Customer and products combine its Castrol lubricants, aviation fuelling, and retail forecourt or ‎convenience sites. 

Gas and low carbon energy integrate its natural gas capabilities with low and zero carbon businesses and markets, while innovation and engineering is home to its safety and operational assurance authorities. 

For a round-up of these latest results, published on 2 August 2022, please click here.

ii view:

BP previously began a new strategy to become an Integrated Energy Company (IEC), increasing its production of low carbon energies and reducing hydrocarbon production. Initiatives undertaken in this latest quarter include plans to partner with Iberdrola to develop large-scale integrated green hydrogen production in Spain, Portugal and the UK, and submitting bids for two offshore wind leases in the Netherlands. 

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For investors, the volatility of energy prices cannot be forgotten. The political fallout with Russia and its reduced, or even ceasing of energy supplies now sit against concerns for a global recession and the potential impact on demand and prices. Continued pandemic lockdowns in China hindering demand also remain a problem.

Global warming concerns remain pressing while investments in low-carbon energies are required. This comes at a price as the cost of buying such assets is likely pushed higher as established players like SSE (LSE:SSE) and industry rivals such as TotalEnergies SE (EURONEXT:TTE) also take an interest. Despite the implementation of a UK windfall tax, possible future increases and other government attempts to raise funds to help energy bill pressured consumers also warrant consideration. 

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On the upside, energy majors have arguably become accustomed to dealing with energy price volatility. Moves to becoming an IEC continue to be taken, while the boost to cashflows from elevated energy prices is underpinning raised shareholder returns via a newly announced $3.5 billion (£3 billion) share buyback programme and increased dividend payment.

On balance, and with the shares sat on a prospective dividend yield of over 4% and consensus analyst estimate of fair value standing at over 500p per share, income investors at least will likely remain loyal.  

Positives: 

• Increasing renewable energy generation 
• Focus on shareholder returns

Negatives:

• Competition for renewable energy assets is intense  
• Highly uncertain economic outlook

The average rating of stock market analysts:

Buy