London: BP has scaled back its industry-leading commitment to cut oil and gas production after soaring fossil fuel prices helped the British energy major to the highest annual earnings in its 114-year history.
The company on Tuesday reported underlying profits for last year of $27.7 billion, eclipsing the $26.3 billion it made in 2008 and more than double the $12.8 billion it reported after a strong 2021.
BP is in the midst of one of the most ambitious strategic overhauls in the sector after committing to cut oil and gas production by 40 percent by 2030 as part of a plan launched three years ago by chief executive Bernard Looney to reduce the group’s emissions and pivot to lower-carbon forms of energy.
But in what will be seen as a major U-turn, the group scaled back its plans, indicating that oil and gas output in 2030 was now expected to be only 25 percent lower.
The shift follows a tumultuous year in energy markets driven by Russia’s war in Ukraine that supercharged the industry’s profits and drove up costs for households, sending policymakers, particularly in Europe, scrambling to secure new supplies of energy.
“Governments and societies around the world are asking companies like ours to invest in today’s energy system,” Looney told the Financial Times.
Although BP’s shares outperformed those of its European rivals last year, total shareholder returns since Looney took the helm in February 2020 have been the lowest among western energy majors, none of which has set a hard target to cut oil and gas production like BP.
Looney argued that the altered oil and gas production guidance, which also means its carbon emissions will fall slower than planned, was not a shift in approach. “The strategy that we have is to invest in today’s energy system and to invest in accelerating the energy transition,” he said. “We’re leaning into it.”
The company’s underlying profits for the final three months of the year were $4.8 billion, up from $3.3 billion a year earlier but just under analysts’ average estimate of $5 billion. BP’s shares were up more than 5 percent in morning trading in London on Tuesday.
The group’s results continue a historic series of earnings for the world’s biggest oil and gas companies, which have all profited from the high fossil fuel prices in the past 12 months caused by Russia’s invasion of Ukraine.
ExxonMobil last week reported a $55.7 billion profit for 2022, the highest annual earnings for a western oil company, while Shell posted record profits of $39.9 billion and Chevron made $36.5 billion.
On the back of the record earnings, BP said it would increase its spending plans to expand the business over the next eight years.
Capital expenditure in 2022 was $16.3 billion. This year BP plans to spend $16 billion-$18 billion, an increase on its previous target of $14 billion-$16 billion per year until 2025. Shell, in contrast, last week left its capital spending guidance unchanged for 2023.
Looney said BP would spend $8 billion more on its “transition” businesses — biofuels, convenience, charging, renewables and hydrogen — between now and 2030 than previously planned and $8 billion more on oil and gas investments.
The boost in hydrocarbons spending means BP’s carbon emissions will also fall slower. The group is now targeting a 20-30 percent drop in emissions from its oil and gas business by 2030 compared with 2019 levels, down from a previous aim of a 35-40 percent decline.
Looney insisted that BP’s targets to achieve net zero emissions across operations, production and sales by 2050 remained industry-leading but said producing about 2mn barrels a day of oil equivalent in 2030 was the “right” amount for the company.
The increase in transition spending to $7 billion-$9 billion a year by 2030 — equivalent to more than half the group’s forecast expenditure — should help those five businesses generate earnings before interest, tax, depreciation and amortisation of $10 billion-$12 billion in 2030, or about 20 percent of group earnings, it said. BP has previously struggled to convince some investors of the returns it can make in areas such as renewables. BP said it would increase its dividend for the fourth quarter by 10 percent and buy back a further $2.75 billion in shares, following $11.25 billion in buybacks announced last year.