Welcome to HL's reimagined News, Insights and Research experience. Find out more

Share research

BP - loss reported in Q1, new buyback announced

Total first quarter revenue rose 40.4% to $51.2bn, driven by growth across all segments.

No recommendation - No news or research item is a personal recommendation to deal. All investments can fall as well as rise in value so you could get back less than you invest.

Prices delayed by at least 15 minutes

This article is more than 1 year old

It was correct at the time of publishing. Our views and any references to tax, investment, and pension rules may have changed since then.

Total first quarter revenue rose 40.4% to $51.2bn, driven by growth across all segments. That includes the benefit of higher energy prices. Despite the revenue increases, there was a reported loss of $20.4bn. That includes non-cash charges of $24.0bn relating to BP's decision to exit its shareholding in Russian-owned Rosneft.

A dividend of 5.46 cents per share was announced, up from 5.25 last year. BP also announced a new $2.5bn buyback, which is expected to complete before second quarter results are announced.

Looking ahead, BP warned of increased volatility in the oil price, because of the ongoing Russia/Ukraine crisis.

The shares rose 1.5% following the announcement.

View the latest BP share price and how to deal

Our View

The escalating crisis in Ukraine has given BP reason to dispose of Russian Rosneft. Finding a willing buyer will be a tricky business. For now, BP will simply carry Rosneft on the balance sheet as an investment, writing down the current value as it declines.

There's no question this will hurt BP's financial position, but it seems not enough to dent the group's profit and shareholder distribution forecasts. The loss of Rosneft's income will be mostly offset by elevated oil prices. For that reason, it's key to remain focused on the wider picture.

Buoyant oil prices are feeding though to massive cash flows, more than offsetting capital investment. It's also allowed some substantial shareholder returns and given the group space to pay down debt.

Indebtedness, as measured by gearing, has been heading in the right direction. Surplus cash is still outpacing planned buybacks too, which supports the shareholder returns programme. Buybacks also help keep the dividend affordable. We should note that current buyback and dividend plans rest on the oil price remaining elevated, which BP has no control over. No dividend is ever guaranteed.

Debt reduction and buybacks are also being heavily supported by asset sales. And that's not a long-term strategy. Eventually, the business would slowly devour itself. Instead, the group needs to generate significant and sustainable positive free cash flow by itself.

Legacy oil & gas assets seem to be doing just that for now, helped by the group's decision to trim capital expenditure. But oil & gas companies are capital hungry, if new oil wells aren't brought online, eventually the group's fields will run dry.

So, focusing capital expenditure on lower carbon assets is brave. The group spent $4.7bn on gas and low carbon projects last year, just a hair below what was spent on oil production and operations. By 2030 the group expects to be spending $5bn a year on low carbon energy projects, up from just $1.5bn in 2021.

The new strategy calls for a twenty-fold increase in renewable generating capacity, big increases in biofuel and hydrogen output, increased focus on its petrol station convenience offering and continued investment in electric vehicle charging. Meanwhile the carbon intensity of the group's remaining oil & gas assets will fall.

It's an admirable goal and based on the group's decision to ramp up its targets, it's humming along faster than expected. This more aggressive approach to the transition could prove to be an inspiring one. However, we worry that BP may be swapping high returning, high quality oil & gas fields for low returning renewables with an unproven track record. Neither BP nor the global energy mix will be free of oil & gas products for years to come, and investing in renewables could be a bit of a money pit in the short term. That could make for a difficult few years if oil prices slide.

BP key facts

All ratios are sourced from Refinitiv. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn't be looked at on their own - it's important to understand the big picture.

First Quarter Results

Reported losses before interest and tax were $1.5bn in Gas & Low Carbon Energy, down from profit of $3.4bn last year. The decline reflects impairment charges, but excluding these, underlying profits were higher than the previous year. Reported production rose 6.2%, and the renewables pipeline rose 1.8GW.

Profits in Oil Production & Operations more than doubled to $3.8bn, largely thanks to higher underlying revenue. BP said its partner Petrobras has announced the discovery of a new oil accumulation in the southern portion of the Campos Basin, and the evaluation of this find is ongoing.

Customers & Products profit also more than doubled to $2.0bn, with results boosted by refining and oil trading.

BP received $1.2bn of proceeds from asset sales, and still expects to receive total proceeds of $2 - $3bn for the full year.

The group spent $2.9bn on capital expenditure and is still targeting a total spend of $14 - $15bn for 2022.

Net debt was $27.5bn, down from $30.6bn at the end of the previous quarter and generated free cash flow of $5.6bn.

This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research disclosure for more information.

Latest from Share research
Weekly newsletter
Sign up for editors choice. The week's top investment stories, free in your inbox every Saturday.
Written by
Sophie Lund-Yates
Sophie Lund-Yates
Lead Equity Analyst

Sophie is a lead on our Equity Research team, providing research and regular articles on a selection of individual companies and wider sectors. Sophie's specialities are Retail, Fast Moving Consumer Goods (FMCG), Aerospace & Defence as well as a few of the big tech names including Facebook and Apple.

Our content review process
The aim of Hargreaves Lansdown's financial content review process is to ensure accuracy, clarity, and comprehensiveness of all published materials
Article history
Published: 3rd May 2022