Oil major BP announced its fourth quarter and full year 2023 financial results on February 6th, 2024, revealing resilient performance in Q4 but a nearly 50% drop in annual profits compared to 2022. While earnings took a hit from lower oil prices, BP still managed to deliver strong shareholder returns through dividends and buybacks.
Q4 Profits Beat Expectations On Strong Gas Trading
BP reported underlying replacement cost profit of $4.8 billion for Q4 2023, beating analyst expectations of $4.6 billion per Reuters. This outperformance was driven by an “exceptional” performance from gas marketing and trading, which helped offset declining earnings in BP’s oil production and refining segments.
Full-year 2023 underlying RC profit plunged to $27.7 billion, down 49% from the bumper $55.2 billion profit delivered in 2022 when oil and gas prices were significantly higher.
Table 1. Key Metrics from BP’s Q4 2023 Results
| Metric | Q4 2023 | Change vs. Q4 2022 |
|---|---|---|
| Underlying RC Profit | $4.8 billion | Down from $4.9 billion |
| Total Hydrocarbon Production | 2.11 million boe/d | Down 4.8% year-over-year |
| Refining Availability | 95% | Up from 93% |
Accelerated Share Buybacks As CEO Vows Priority For Investors
Despite posting declining annual profits, BP said it would accelerate its share buyback program in 2023. The company committed to $14 billion of buybacks by early 2025, pulling forward plans originally scheduled for late 2025.
BP also maintained its quarterly dividend of 6.616 cents per share, in line with previous guidance.
Newly appointed CEO Neill McBride emphasized rewarding investors as his number one priority in initial comments after the results:
“My main focus is to make sure our investors benefit from the strong cash flows we expect to produce over the coming years,” McBride stated.
The accelerated pace of capital returns helped boost BP’s share price over 6% on February 7th after the earnings release. Investors cheered the commitment toprioritizing shareholder returns over other uses of cash flow.
2023 Capex Cut, Production Growth Still Seen In 2024
BP reduced its overall capital expenditure (capex) in 2023 to $15.5 billion, below previous guidance of $16-18 billion per year. The capex cut helped the company generate surplus cash flow to fund the expanded buyback program.
However, BP said it still plans to increase hydrocarbon production to 2.3 million barrels of oil equivalent per day (boe/d) in 2024. This indicates capital discipline rather than underinvestment in operations.
The company does face pressure on returns from declining oil and gas prices. Its average 2023 hydrocarbon realizations were down 38% for oil and 54% for U.S. gas compared to 2022. But BP sees industry inflation moderating, allowing its capex budget to go further.
Financial Strength Supporting Energy Transition
In addition to rewarding shareholders, BP emphasized its financial strength will support its transition towards clean energy. The company is aiming to cut oil and gas output by 40% while increasing renewables capacity 20-fold by 2030.
CFO Murray Auchincloss cited BP’s “decreased gearing, lower debt, and improved credit metrics” as providing capacity to fund this transition. BP also plans to maintain discipline, rejecting projects that don’t meet return hurdles above 10%.
The earnings results indicate BP striking a balance between transition investment, operational strength, and shareholder returns. But the company does face scrutiny over high profits off the back of elevated energy prices affecting consumers. Further analysis will be required to assess if BP can sustain performance as the energy landscape shifts.
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