- Weaker oil and gas prices weigh
- $1.75 billion buyback maintained
- $2 billion-plus cost-saving target
Shares in BP (BP.) fell 0.75% to 506.6p in a rising market after the energy producer’s first-quarter results missed expectations with weaker oil and gas prices and an unplanned US refinery outage curbing profits.
However, the FTSE 100 energy titan’s shareholder-friendly focus helped limit the price damage.
BP maintained its share buyback at $1.75 billion for the quarter and recommitted to buybacks of $3.5 billion for the first half of 2024 as new boss Murray Auchincloss seeks to narrow the valuation gap with Shell (SHEL) and US peers.
INAUSPICIOUS START
BP’s drop in first-quarter profits reflected a ‘significantly weaker’ fuel margin and lower oil and gas prices.
Underlying replacement cost profit came in at $2.7 billion, below the $2.9 billion called for by analysts and down from the near-$3 billion BP generated in the previous quarter.
Energy industry profitability generally has been impacted by a drop in gas prices, although BP’s quarterly miss still represents a relatively inauspicious start for Auchincloss since his interim role was made permanent in January.
This followed the resignation of predecessor Bernard Looney due to undisclosed personal relationships with colleagues prior to becoming chief executive.
WHAT DID AUCHINCLOSS SAY?
Auchincloss insisted his charge delivered ‘another resilient quarter financially and continued to make progress on our strategy. Oil production was up and our ACE platform in the Caspian is now producing.’
He added: ‘We are simplifying and reducing complexity across BP and plan to deliver at least $2 billion of cash cost savings by the end of 2026 through high grading our portfolio, digital transformation, supply chain efficiencies and global capability hubs.’
In terms of BP’s energy transition strategy, Auchincloss appears to be singing off the same hymn sheet as Wael Sawan, his counterpart at Shell. Essentially, BP will make green investments as long as they pay.
Jamie Maddock, energy analyst at Quilter Cheviot, said ultimately, ‘the market is going to compare BP to Shell a lot at the moment, particularly as the latter is doing well in fairly volatile conditions. For BP however, this means slight misses in results leads to a slightly more over-exaggerated reaction. Today’s results from BP were fairly uneventful in the grand scheme of things with its earnings and shareholder returns more or less as expected.’
Maddock added: ‘Despite profits being lower than the market expected, BP has maintained its share buyback at $1.75 billion for the quarter. This is positive and suggests it has confidence in its earnings going forward, despite the ups and downs of the commodity markets. Furthermore, the business is looking to make at least $2 billion in cost savings by the end of 2026 as it looks to grapple with lower oil and gas prices compared with the past couple of years.’
VALUATION DISPARITY
Russ Mould, investment director at AJ Bell, observed that Auchincloss’ use of the word ‘pragmatic’ will be seen as a euphemism in some quarters for putting profit before the planet.
‘However, to an even greater extent than Shell’s Sawan, Auchincloss is eyeing a big valuation disparity between his charge and rivals across the Atlantic and will clearly feel a big part of his remit is closing that gap,’ said Mould.
‘To that end, the company is targeting efficiencies and savings through initiatives like the use of technology and improvements to its supply chain. Maintaining the pace on share buybacks demonstrates a commitment to returning cash to shareholders.’
DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (James Crux) and the editor (Ian Conway) own shares in AJ Bell.
