Market AnalysisAug 04, 20262 Min
Why is Britain’s oil giant BP under radar despite reporting 100% jump in Q2 profit?
A day after US President Donald Trump slammed major oil companies for “making too much money” at the cost of a common man’s budget as US-Iran hostilities pushed oil prices higher, Britain’s BP Plc has reported doubling of profits.
The British oil giant on Tuesday said that underlying replacement cost profit stood at $5.7 billion for the June quarter compared with $2.35 billion a year ago and $3.2 billion in the previous quarter.
Replacement cost profit is an adjusted earnings metric that calculates a company’s operating profit by valuing inventory and goods sold at current market replacement costs rather than historical purchase costs.
European oil majors like BP use replacement cost profit as a proxy for net profit as it removes the component of market volatility in oil prices from the core operating results.
BP’s profit growth was driven mainly by higher realisations from oil and gas sales as global oil prices surged sharply in the June quarter due to supply constraints in the Middle East region.
Along with profit, the company’s operating cash flow also jumped 73% to $10.9 billion compared with a year ago. Net debt was cut to $22.3 billion during the second quarter compared with $25.3 billion at the end of March quarter.
With Tuesday’s earnings announcement, BP joins a list of major oil companies that have seen a windfall quarter due to a spike in crude oil prices.
Europe’s largest oil company Shell posted its second highest quarterly earnings this week, with net profit doubling to a whopping $10 billion in the June quarter. Saudi oil company Aramco also saw a 44% rise in net profit to $32.69 billion in the three months ended June.
US company Exxon’s second-quarter profit more than doubled to $14.5 billion in the June quarter compared to a year ago, while Chevron’s earnings soared by nearly 400% year-on-year to $12 billion.
This kind of bottom-line growth has drawn heavy criticism from the society at large as households and businesses struggle with rising energy bills. President Trump, in fact, suggested that these upstream oil companies should return some of their profits back to the public.
Defending its business, BP’s CEO Meg O’Neill told CNBC on Tuesday: “The reality is we produce a global commodity and the prices for the product we sell hangs off that global commodity price.”
Is BP selling Archaea?
In order to simplify its portfolio and strengthen the balance sheet, BP also announced that it has launched a process to sell its North Sea business and its US biogas business Archaea.
BP had recently sold its Gelsenkirchen refinery along with its Austria retail business to trim overall non-core operations to shift focus back to its core oil and gas business.
O’Neill also said that BP was “not making the most” of its potential.
“Our performance over the past few years has not met our own expectations, let alone those of our shareholders. We have not delivered consistently; we have written off too much value; and our costs and liabilities are not resilient enough in a low-price environment,” she said.
O’Neill set out five priorities – debt reduction, portfolio simplification, investment discipline, operational performance and accountability – to deliver a step change in performance and grow shareholder value.
