How much money is BP PLC (LSE:BP.) making?
Well … enough that a casual analysis of this morning's interim results could easily skip past a US$24bn Russian asset write-off and barely look back or flinch.
To run through the quick re-tweetable highlights:
- First half profits practically trebled to nearly US$15bn vs H1 2021
- Cash flow for Q2 doubled to about US$11bn vs Q2 2021
- ‘Surplus’ cashflow ballooned to US$6.6bn vs US$695mln a year ago
- US$10bn of debt has been repaid
- US$3.5bn of new share buy-backs, taking YTD total to US$6bn
- Dividend is increasing by 10%
Much is being made of BP’s “bumper” profits and cash flows. Like Shell’s last week, the numbers are being analysed, filtered and stewed over from almost every angle.
Sure enough, there's plenty to potentially say and there’s no shortage of agendas - the economics, ethics, politics, climate change and the subjective consumer plight of it all.
There’s more than enough to keep the think-piecers thinking for quite some time.
But, this is not one of those think pieces. This is to say something quite simple.
This is business. This is capitalism.
BP and London Stock Exchange peer Shell are making a lot of money because their primary products are priced at massive premiums compared to previous levels, because of external market forces.
Largely fixed costs mean they are operationally geared to succeed in this perfect (s@!t) storm.
The upshot is big margins and big profits.
In the immediately regrettable words of a certain chief executive, oil and gas businesses have transformed into cash machines this year.
We’ve all known this. We were reminded every time we filled our cars at the pump and tried not to look at our gas bills.
BP and Shell’s shareholders, the owners of these businesses, are receiving a hefty chunk of the proceeds through increased dividends and, indirectly, through share buy-backs.
It should also be noted, that when Brent and WTI prices were scraping along on their backsides at US$20 to US$40 a barrel in the pandemic year, from April 2020, certain oil companies drew down debt to maintain dividend payments. This isn’t oft talked about, and it’s for another debate.
If one pauses the philosophising for a second and turns down the volume on the background noise, can anyone claim to be confused or surprised that one thing (higher oil and gas prices) lead to another (higher profits for oil and gas companies)?
That this comes at a time when climate fears are at their highest and household bills are at their tightest isn’t, in the cold light of day, much more than unfortunate or coincidental.
I don’t really know how I feel about that, and I don’t intend to tell you how to feel about it either.
But, for those among the shareholders of BP and Shell - and, if you have any pension products in the UK, then that probably includes you - perhaps there’s just an uneasy and nuanced sense of relief that at least there’s one part of your finances that’s not currently being squeezed.