BP will hand out billions of pounds to shareholders after tripling profits to almost £7bn in the second quarter of the year amid high oil prices amid Russia’s invasion of Ukraine, although the families struggle in a cost of living crisis.
The FTSE 100 oil company said on Tuesday that its preferred profit measure, which it describes as underlying replacement cost profit, rose to $8.5bn (£6.9bn) between April and June. That’s up from $6.2 billion in the first three months of the year and triple BP’s underlying profit of $2.8 billion in the second quarter of 2021.
BP’s first-quarter profit was already the highest in more than a decade. Rachel Reeves, the shadow chancellor, said the “exciting profits” showed the government was “totally wrong” to have given major tax breaks to oil companies.
BP also said it will hand over $3.5 billion to investors through a new share buyback, while it increased its total dividend payout by 10% to about $1.1 billion.
Oil companies in the UK and beyond have enjoyed booming revenues in recent months as energy prices have risen, even as households around the world have struggled with the rise of the invoices. As Russia’s invasion progresses, some analysts have predicted that the UK’s annual energy bills could rise to £3,850 by winter, triple what they were paying at the start of 2022.
Shell last week reported record quarterly profits of almost £10bn between April and June, while British Gas owner Centrica made an operating profit of £1.3bn, most of which came from its oil and gas drilling division. France’s Shell and Total said last week they would also give shareholders billions of dollars in share buybacks and dividends.
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BP said its huge profits were driven by higher refining margins and “an exceptional performance in the oil business”.
The oil major was forced to write down the value of its Russian investments by $24 billion in the first quarter, but rising oil prices have already made up for much of the lost ground. Strong cash flows have allowed it to reduce its debt pile, in a further boost to investors.
Energy bills have been a major contributor to inflation, which has risen to a 40-year high of 9.4% in the UK. Several forecasters believe that inflation will be above 10% in the coming months.
The UK government belatedly responded to political pressure amid rising energy prices with a windfall tax on the “extraordinary profits” of oil companies. However, the 25% tax, known as the Energy Profits Tax, did not come into force until July 14, meaning it does not apply to profits made by BP or others oil companies during the second quarter.
Labour’s Reeves criticized the government for giving oil companies 80% tax breaks for new investments that reduce their tax bill. He said Labor would use the extra money to abolish tax breaks for a “green energy sprint” as well as more home insulation to reduce energy use.
“People are worried about energy prices going up again in the fall, but once again we see spectacular profits for oil and gas producers,” he said.
“Labor argued for months for a windfall tax on these companies to help reduce bills, but when the Tories finally turned around, they decided to return billions of pounds to producers with tax breaks. This is totally wrong.”
BP reports its own measure of replacement cost benefit to indicate its profitability before taking into account changes in the value of the oil it has in storage.