BP’s 2022 Earnings Round Out A Record Year For Oil Majors

The stock of British oil major BP shot up by 8% Tuesday after the company became the latest major integrated oil company to report record earnings for 2022. BP’s annual profit of $27.7 billion adds to the earnings bonanza announced by the five privately-held major oil companies during a year that saw the Brent price for crude hovering above the $80 per barrel mark for almost the entire 12 months.

U.S. major ExxonMobilXOM
reported the most robust 2022 profit, coming in at $55 billion. Shell was the next highest at $40 billion, followed closely by French major Total Energies at $36.2 billion and ChevronCVX
at $35 billion, bringing the total among the 5 majors to an all-time high of $194 billion.

While BP’s 2022 earnings were the lowest among the members of the “big oil” club, the company appears set to be rewarded by the investor community for recalibrating its corporate strategic approach to come more in-line with its competitors. As part of its earnings release, BP CEO Bernard Looney assured investors that his company would be slowing its path to reducing its equity oil production as part of its emissions reduction strategy.

“It’s clearer than ever after the past three years that the world wants and needs energy that is secure and affordable as well as lower carbon – all three together, what’s known as the energy trilemma,” Looney said. “To tackle that, action is needed to accelerate the transition. And – at the same time – action is needed to make sure that the transition is orderly, so that affordable energy keeps flowing where it’s needed today.”

The “affordable energy” to which Mr. Looney refers there is, of course, oil. Last year, BP said it would seek to cut emissions from its crude production by 35-40% by the end of the current decade; Tuesday, it said it would now target a reduction of 20-30%, pointing to steadily rising global crude demand as the reason.

During a panel discussion at last week’s NAPE Summit in Houston, my fellow panelists and I discussed the fascinating contrast in oil demand outlooks published recently by BP and ExxonMobil. Where BP’s analysts project global crude demand falling into a rapid decline by 2030 and dropping to just 75 million barrels of oil per day (bopd) by 2050, ExxonMobil analysts see robust demand rising from its current 101 million bopd to 105 million by 2040 before embarking on a very slight decline.

Not surprisingly, the strategies for achieving net-zero pursued by each company are reflective of their respective outlooks. If you’re BP, and you really believe that global demand for crude is going to begin a steep decline in just 7 years, then a de-growth strategy makes perfect sense. But if you’re ExxonMobil, and you really believe global demand will remain robust through 2050 and for decades beyond, then the continuing growth strategy becomes the logical path to pursue.

As part of its evolving strategic approach, BP also joins ExxonMobil and others in promising to increase investments in the finding and development of new reserves, an area that has been dangerously neglected by the global industry in recent years. The company also joined its U.S. counterparts in promising increased investments in its dividends and stock buyback programs, both of which are designed to reward the investor community.

Interestingly, while BP promised to slow plans to decrease its equity oil production in the coming years, it did not announce any similar plans to scale back investments in what it calls “transition growth engines,” or TGEs. If anything, the company’s release indicates an intent to expand those investments by a total of $8 billion by 2030, along with corresponding expansions in it’s fossil fuels investments.

Of course, if last week’s Wall Street Journal report claiming Looney has recently expressed dissatisfaction internally with the lack of profitability by some of the company’s renewable energy investments is accurate, the mix of how BP spends those enhanced investment dollars could change in the coming years. The company’s release gives some hints at this, placing more emphasis on its investments in biofuels, hydrogen, aviation fuels and other low carbon transportation solutions than it does on further investments in wind, solar and other renewable energy initiatives.

Bottom Line: BP’s strategic shift now brings its approach more in-line with those of its competitors, who have been richly rewarded by the investor community over the last two years. Now that big oil’s record earnings for 2022 are out in the public domain, the management teams at these companies will no doubt keep busy preparing to defend their companies from a new round of efforts by western governments to extract a bigger share from their bottom lines.

In the world of energy and energy policy, some things never change.